Investors have been in a good mood so far this week, but everything can change when the Federal Reserve is poised to make a pronouncement on monetary policy. The Fed will give its latest guidance on interest rates on Wednesday afternoon, and in advance of the central bank's release, markets didn't move much. The Dow Jones Industrial Average (^DJI 0.68%) was down about 0.1% shortly after the beginning of the regular trading session Wednesday morning.
Weighing on the Dow somewhat, shares of Nike (NKE -0.39%) were lower after the athletic shoe pioneer released its latest financial results. However, the decline in Nike's stock was relatively small compared to what shareholders in Petco Health and Wellness (WOOF 0.91%) had to endure, as the pet retailer also gave its most recent financial report to investors. Here's why both stocks moved lower early Wednesday.
Nike sees margin pressure
Shares of Nike were down between 1% and 2% just after the open on Wednesday morning. The company's fiscal third-quarter financial report for the period ended Feb. 28 showed solid demand from consumers, but Nike wasn't able to generate as much profit in a highly promotional environment across the retail sector.
Nike's financial results were mixed. Revenue climbed 14% to $12.4 billion, even though the company faced a headwind due to the strong U.S. dollar that reduced its sales gains by 5 percentage points. Sales through Nike's direct channel were especially strong, rising 17% as digital sales climbed 20% from year-ago levels.
However, gross margin took another hit, falling more than 3 percentage points to 43.3%. Nike cited inventory levels that were 16% higher than they were a year ago as profits were weighed down by higher input costs for making products as well as freight costs that remained elevated. Net income fell 11% year over year, and on a per-share basis, earnings dropped 9% to $0.79 per share.
Nike has been a huge long-term winner for investors, but that doesn't mean that it hasn't gone through difficult periods from time to time. Even if economic weakness remains persistent for a while, Nike should be able to make adjustments and keep moving in the right direction.
Petco deals with disappointment
Shares of Petco Health and Wellness didn't hold up as well as Nike's did. The pet retailer stock dropped 7% shortly after the open, and investors didn't seem to feel comfortable with how the company's growth slowed down.
Petco's fiscal fourth-quarter financial results for the period ended Jan. 28 revealed the resilience of the pet products sector but also showed some of the pressures on businesses right now. Sales came in at $1.58 billion, up 4% year over year. However, Petco's adjusted net income dropped 17% to $62 million, or $0.23 per share.
Petco experienced better performance in some of its segments than in others. Sales of consumables were up 12% compared to the prior-year period, and pet services showed an even stronger 17% jump. However, the supplies and companion animal segment suffered a nearly 8% sales drop, which held back growth elsewhere.
Unfortunately, Petco doesn't expect sales growth to get out of single-digit percentages. Projections call for net revenue of $6.15 billion to $6.275 billion, compared to the previous year's $6.04 billion. Indeed, with an extra week in the current fiscal year, Petco's outlook suggests that comparable sales could actually decline. That would come as a shock to those who've seen nothing but strong results from pet retailers in recent years.
