Nike (NKE 0.19%) stock hasn't been an exciting holding for investors so far in 2023. The footwear giant's stock has declined even as the S&P 500 rallied, leaving shareholders with lackluster returns.
But the performance of the business is another story. Nike recently closed out its fiscal 2023 year on a high note across several operating metrics. Wins here could position the company for faster, more profitable growth ahead in fiscal 2024. Let's take a closer look at that momentum, and what it could mean for the stock over the next year.
Finishing strong
There was a lot for investors to like about Nike's fiscal fourth-quarter growth metrics. Sure, sales gains slowed to 8%, after accounting for currency exchange rate swings, down from 19% in the prior quarter. But shareholders shouldn't read too much into short-term swings like these. Stepping back, revenue rose a healthy 16% for the full fiscal 2023 year.
Executives said the U.S. market benefited from high customer traffic in stores and online, which translated into market share gains. Its recovery in China gained steam, too. "This quarter left no doubt," executives said in a conference call with investors, "sport is back, and consumer confidence is rebounding." These wins point to a stronger growth year ahead in fiscal 2024.
Margins and inventory
Two other financial metrics stood out as positive factors for the next year. Nike's gross profit margin is still declining but seems to be stabilizing at around 44% of sales. Pressures on this figure include higher input and transportation costs, along with price cuts tied to markdowns. It's good news for the business that Nike was able to limit the drop in gross profit during a tough year for the wider footwear industry. Foot Locker (FL 0.23%), for context, saw much steeper profitability declines in the most recent quarter.
NKE Gross Profit Margin data by YCharts
And Nike is in a much better inventory position today than it was just a few quarters ago. In fact, that level is finally matched up well with the current demand environment. Inventory was flat this past quarter after rising 16% in the prior quarter, indicating that its targeted price cuts have put it in a great position for fiscal 2024. "The actions we've taken position us for more profitable growth moving forward," CEO John Donahoe told investors in late June.
Buy the stock?
Cautious investors might be tempted to simply watch the stock now for more concrete signs that the footwear industry is done with the latest cyclical downturn. Foot Locker said it expects pricing pressures on its business to last through at least the end of 2023, after all.
But Nike isn't in the same position as Foot Locker. It has a larger sales footprint, a stronger connection to consumers through its digital outlets, and a packed pipeline of innovative product releases on the way. Inventory levels suggest a return to gross profit margin expansion sometime soon, as well.
The growth stock seems attractively priced at just 3.3 times annual sales, down from late 2021 highs of over 6 times sales. Altogether, these factors suggest the next year will be a good one for Nike shareholders.
