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Nike (NKE) Q2 earnings 2023

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Nike on Tuesday reported quarterly results that easily topped Wall Street’s expectations while raising its outlook, as the corporate touted its success in clearing through its hefty inventory pile.

Shares of Nike rose greater than 10% after hours Tuesday.

Here’s how Nike did in its second fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

  • Earnings per share: 85 cents vs. 64 cents expected
  • Revenue: $13.32 billion vs. $12.57 billion expected

The corporate reported net income for the three-month period ended November 30 was $1.33 billion, or 85 cents per share, compared with $1.34 billion, or 83 cents per share, a 12 months earlier.

Nike reported revenue of $13.32 billion, up 17% from $11.36 billion a 12 months earlier.

Considering the strong performance, Nike Chief Financial Officer Matt Friend said on an earnings call that the corporate now sees its revenue growing for the complete fiscal 12 months.

Over the past three quarters, Nike has beaten Wall Street’s expectations, but like other retailers, has struggled with inflated inventory levels that arose from supply chain disruptions, rising consumer demand and unpredictable in-transit shipping times.

Inventories were up 43% to $9.3 billion within the quarter, in comparison with last 12 months. The merchandise glut led to aggressive markdowns, which helped reduce Nike’s gross margin to 42.9% from 45.9% a 12 months ago. Nonetheless, inventories declined from $9.7 billion within the previous quarter. Nike CEO John Donahoe said he believes the corporate is already past its inventory peak. Gross margins are expected to say no by two percentage points to 2.5 percentage points next quarter as liquidation efforts proceed, Friend said.

The corporate also saw a ten% year-over-year uptick in selling and administrative expenses to $4.1 billion, mostly led by promoting and marketing costs and investment in Nike Direct as the corporate continues to maneuver away from wholesalers. The corporate expects those costs to extend by high single digits next quarter as well.

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While the concentrate on Nike Direct was largely accountable for the increased administrative expenses, the investment has paid off. Nike Direct sales were up 16% for the quarter at $5.4 billion and digital sales were up 25%. Nike executives touted record growth within the brand’s digital membership platform as a “key reason” behind the net sales jump. Shoppers who became members were capable of make the most of several Black Friday and Cyber Monday promotions.

For the last several quarters, wholesale revenue has been effectively flat but was up 19% for the quarter. Nike executives said sales were stronger to wholesalers in the course of the quarter because they finally had the inventory available to sell to them after supply chain constraints.

Nike’s sales in China, its third biggest market by revenue, dropped by 3% in comparison with last 12 months, continuing a trend the retailer has been contending with because the country deals with lingering Covid lockdowns and a slowdown in retail spending. Overall retail sales within the country fell by 5.9% in November in comparison with a 12 months ago and garments and shoe sales plunged by 15.6%, in keeping with the National Bureau of Statistics of China.

After earnings from Nike’s fiscal first quarter were released in September, executives said the corporate’s inventory had grown 65% during the last 12 months in North America alone and because of this, the corporate enacted an aggressive promotional technique to liquidate the merchandise and make way for brand spanking new products.

The plan was a key a part of Nike’s technique to shift its sales on to consumers and away from wholesalers by improving the in-store experience and enticing customers to buy directly from the corporate online.

On Friday, Nike announced its recent “Jordan World of Flight Milan” store situated on Via Torino, a famed shopping district within the Italian locale well-known for its designer shoe stores.

The initiative reflects the steps Nike is taking to grow the corporate as a direct-to-consumer brand.

The shop, called a “first-of-its-kind retail experience” by the corporate in a news release, has a built-in members lounge and can include interactive shopping experiences tailored to fans of the renowned sneaker brand.

Read the corporate’s earnings release here.

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