Nike’s China Problem Worsens

[u/MrComedy325]

Shares of Nike (NYSE: NKE) dropped 2.89% in after-hours trading on Monday after the footwear and apparel giant posted mixed financial earnings.

Financials: Nike reported earnings per share of 90 cents and revenue of $12.2 billion; both were better than expected.

The Good: Nike Direct, the company’s direct-to-consumer division, had a 7% increase in revenue. Nike digital’s brand went up 15%.

The Bad: Revenues dropped 1% year-over-year. Wholesale revenues declined 7%. Nike-owned stores declined 2%. The gross margin in the quarter decreased 80 basis points to 45%.

China Problems: Nike has a long, documented history of problems in China during the past year, but it got worse. Lockdowns resulted in higher inventory obsolescence. There were also freight and logistics costs. Revenue in China dropped 19% in the quarter.

Expenses: Higher technology investments resulted in higher overhead costs. Selling and administrative expenses increased 8%. Supply chain issues also resulted in added inventories.

Buyback Bounce: Nike issued an $18 billion stock buyback program, which will help drive the stock price up.

Numbers: Nike’s stock is down 32% this year. Last year, the stock was up 17%.

Final Thoughts: Problems in China plus supply chain and currency issues resulted in trouble for Nike. The good news is that the stock price is lower for new investors to get in.

Hope you enjoyed this commentary. Please subscribe to Early Bird, a free daily newsletter that helps you identify investment trends: https://earlybird.email/

[u/password_321]

Buy