(News Bulletin 247) – The company published results above expectations for its first quarter and above all succeeded in reducing its inventories, showing that it is managing to get rid of old, less profitable items. Despite falling revenues in North America, the market is appreciating.
To say that Nike’s release was anxiously awaited by the market is an understatement. The stock experienced nine consecutive sessions of decline between September 15 and September 27 and over the entire ninth month of the year it recorded only three days in the green. Over the whole of 2023, the stock loses 23.4%.
The stock suffered from concerns about high inventory levels in the sector, which built up after the post-pandemic supply chain suddenly improved, particularly in North America. And fears about discretionary household spending in the United States.
Earlier this week, Jefferies downgraded its view on Nike, as well as several other stocks, like Foot Locker, due to the resumption of student loan payments, which could force families to tighten their belts on non-profit expenses. essential items, such as sporting goods. According to an opinion survey carried out among 600 American consumers by the bank and cited by Yahoo Finance, nearly 90% of them said they were at least “somewhat concerned” about their monthly income.
Downturn in North America
But Nike gave some reassuring signs by publishing its accounts for the first quarter of its 2023-2024 financial year, which will close at the end of next May.
The pressures that the market feared are somewhat visible. From June to the end of August, the company’s revenues increased by 2% to $12.94 billion, both on a published and currency-adjusted basis. This marks a clear slowdown compared to the previous two quarters (16% in the fourth quarter of 2022-2023 and 19% for the third, excluding currency effects). According to a consensus cited by CNBC, analysts also expected better sales, with a figure of 12.98 billion dollars.
Nike recorded solid growth both in China (+12% excluding currency impact) and in Europe, Africa, Middle East (+6%). But its sales in North America, a region which represents nearly 45% of its revenues, fell by 1% excluding currency effects, with a decline of 2% in shoes, its largest source of turnover.
But this modest growth over the quarter is explained by a significant drop in inventories, which should allow the company to benefit from a healthier commercial environment. At $8.7 billion, stocks decreased by 10% over one year. This shows that the company manages to remove its old items from the market and replace them with new, more profitable ones.
Thus, the financial director, Matthew Friend, explained that the very limited progression of the “wholesale” channel (multi-brand stores), of 1% over the quarter, was explained by the desire “to limit the supply of stocks and to prioritize the health of the market, particularly in North America.”
The action resumes
On other lines of accounts, Nike published a gross margin of 44.2% against 43.7% expected by analysts while its earnings per share also exceeded expectations at 94 cents against 75 cents anticipated by the consensus.
Regarding its outlook, Nike forecasts revenues for the second quarter up slightly year-on-year due to a demanding comparison basis while gross margin should increase by one percentage point.
For the entire 2023-2024 financial year, sales are still expected to grow in published data around 4-6% and the gross margin is expected to improve by 140 basis points (1.40 percentage points) at 160 basis points (1.6 points).
The publication and the reduction in stocks it contains is so far well received by the market. In post-closing trading on Wall Street, Nike shares advanced 7.9% to $96.67, albeit starting from very low levels.
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