Nike stock (NYSE: NKE) is trading lower in US premarket price action today despite posting an earnings beat in its fiscal fourth quarter of 2022. The stock is drifting towards its 52-week lows. Also, with a YTD loss of almost 34% Nike stock is underperforming the markets and the gap looks set to widen even further.
Nike stock has been under pressure due to supply chain issues. The company initially battled the global supply chain crisis and global lockdowns. Soon enough, the lockdowns in Vietnam hit the sneaker maker. Now, it is facing troubles in China which is not only a sourcing hub but also the company’s second-largest market after the US.
Nike posted revenues of $12.23 billion in the fiscal fourth quarter that ended in May. The revenues were ahead of the $12.06 billion that analysts were expecting and were 3% higher YoY on a currency-neutral basis.
The company’s wholesale revenues fell 7% to $6.8 billion while Nike Direct revenues increased 7% YoY to $4.8 billion. The company has been prioritizing direct sales over wholesale sales amid the inventory shortage and supply chain issues. Direct sales typically generate better margins than wholesale sales. Nike’s EPS of $0.90 was also ahead of the $0.81 that analysts were expecting.
Notably, Nike Direct reported sales growth in all regions apart from Greater China. The total sales in the region fell 19% to $1.56 billion. Commenting on the earnings, Matt Friend, Nike’s CFO said, “Two years into executing our Consumer Direct Acceleration, we are better positioned than ever to drive long-term growth while serving consumers directly at scale.”
Nike Sees No Major Issues on Demand Side
Nike management does not see much issues on the demand side even as many brokerages have been predicting a recession. Friend said, “We continue to closely monitor consumer behavior, and we’re not seeing signs of pullback at this point in time, and so we continue to execute the strategy and the plan we have, which is working.”
The company however sounded cautious about its China business which took a toll on sentiments. Friend said, “We did take a cautious approach to Greater China.” He added, “And we’re doing that as we look at what disrupted our performance in the fourth quarter.” The company authorized a new $18 billion stock buyback program which would succeed the $15 billion stock buyback ending in the current fiscal year.
The company ended the quarter with total cash of $13 billion which was $479 million lower than the corresponding quarter last year due to stock buybacks, dividends, and inventory build-up.
Nike is Facing Other Issues in China
Meanwhile, Nike as well as some of the other US companies have been facing intermittent boycott calls in China. Apple too has faced such calls in the past but its CEO Tim Cook has said in the past that these have not had any material impact on sales. Apple has meanwhile lost billions of dollars of sales over the last two quarters due to supply chain issues. The company is now reportedly looking to launch several new models over the next year.
The global supply chain crisis continues to impact Nike and the company’s inventory rose 23% in the quarter.
Wall Street analysts are largely bullish on Nike stock and the majority rate it as a buy even as many have downwardly revised their ratings on slowdown fears. Seaport meanwhile took a bearish view of the stock and downgraded the stock from a buy to neutral. The brokerage is concerned about the company’s valuations. However, the consensus view is bullish on Nike stock despite headwinds like the slowdown in China and a possible recession in the US.
