We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
NIKE Inc. (NKE - Free Report) reported second-quarter fiscal 2024 results, wherein earnings beat the Zacks Consensus Estimate. Moreover, the top and bottom lines improved year over year. Results particularly gained from robust retail sales across Nike Direct. NKE also continued to benefit from its business strategy, compelling product innovation and digital leadership.
In second-quarter fiscal 2024, the company’s earnings per share were $1.03, up 21% from the 85 cents reported in the year-ago quarter. Earnings also beat the Zacks Consensus Estimate of 84 cents.
Revenues of the Swoosh brand owner grew 1% year over year to $13,388 million but missed the Zacks Consensus Estimate of $13,395 million. On a currency-neutral basis, revenues were down 1% year over year.
Sales at NIKE Direct improved 6% on a reported basis and 4% on a currency-neutral basis to $5.7 billion, driven by improved traffic at stores and online. The increase included 4% growth at NIKE Digital, on a reported basis and 1% growth on a currency-neutral basis. Additionally, NIKE Direct sales were aided by a 9% rise on a currency-neutral basis at NIKE stores. However, this was partly offset by a decline in wholesale revenues.
Wholesale revenues of $7.1 billion were down 2% from last year on a reported basis and 3% on a currency-neutral basis.
NIKE shares slumped 11.7% in the after-hours trading session on Dec 21, 2023, following the soft top-line performance in the fiscal second quarter and a bleak revenue outlook for the second half and fiscal 2024. Overall, shares of the Zacks Rank #2 (Buy) company have rallied 35.3% in the past three months compared with the industry’s growth of 26.9%.
Image Source: Zacks Investment Research
Operating Segments
The NIKE Brand revenues were $12.9 billion, up 1% year over year on a reported basis and flat on a currency-neutral basis. Results were driven by currency-neutral growth in Greater China and APLA, partially negated by declines in North America and EMEA.
We estimated total NIKE Brand revenues to increase 1.2% year over year to $12,872.7 million in the fiscal second quarter, driven by 2.2% growth in Direct-to-Consumer and a 0.5% rise in the Wholesale business.
Within the NIKE brand, revenues in North America fell 4% on a reported basis and 3% on a currency-neutral basis to $5,625 million. The decline can be mainly attributed to a 9% dip in the wholesale business. Sales for the NIKE Direct business were up 3% in the region, including a 2% increase at Nike Digital and 4% growth at Nike Stores.
In EMEA, the company’s revenues rose 2% on a reported basis and declined 3% on a currency-neutral basis to $3,567 million. The Wholesale business declined 8% year over year in the quarter. NIKE Direct revenues for the segment grew 7% on a currency-neutral basis, with 8% growth in Nike Stores and a 7% increase at Nike Digital.
In Greater China, revenues advanced 4% year over year on a reported basis and 8% on a currency-neutral basis in the fiscal second quarter to $1,863 million. The region has been witnessing strong brick-and-mortar sales, with continued improvement in full-price sales, and sales in Nike-owned and partner stores growing in the mid-teens. NIKE Direct fell 4% on a currency-neutral basis, while NIKE Digital revenues were down 22% year over year and Nike stores were up 16%. Moreover, Wholesale revenues grew 19%, driven by another quarter of strong sell-through.
In APLA, NIKE revenues rose 13% on a reported basis and 10% on a currency-neutral basis to $1,805 million. NIKE Direct advanced 15% on a currency-neutral basis, driven by a 17% hike in NIKE stores and 14% growth in Nike Digital. Southeast Asia and India, Korea, and Mexico led sales growth in the region during the fiscal second quarter.
Revenues at the Converse brand dropped 11% on a reported basis and 13% on a currency-neutral basis to $519 million. The decline was led by softness in North America and Europe, somewhat offset by growth in Asia.
Costs & Margins
The gross profit rose 5% year over year to $5,971 million, while the gross margin expanded 170 basis points (bps) to 44.6%. We anticipated the gross margin to expand 100 bps to 43.9%. The gross margin expansion can be attributed to the company’s effective pricing actions, reduced ocean freight costs, improved supply chain and slight markdown gains. This was partly negated by elevated input costs and an unfavorable currency impact of 60 bps.
Selling and administrative expenses increased 1% to $4,146 million, which marked an improvement from our estimate of a 5.8% increase to $4.4 billion. Better-than-expected SG&A expenses resulted from stringent expense management efforts and some shifts in the timing of expenses. As a percentage of sales, SG&A expenses were flat with the prior-year quarter at 31%.
Demand-creation expenses increased 1% year over year to $1,114 million, owing to elevated marketing expenses. Operating overhead expenses were almost flat year over year at $3,032 million on higher NIKE Direct variable costs, offset by lower spending on technology and wage-related expenses.
Our model predicted Demand Creation expenses of $1,190.1 million, which indicated year-over-year growth of 8%. Operating overhead expenses were anticipated to increase 5% year over year to $3,172.4 million.
Balance Sheet & Shareholder-Friendly Moves
The company ended the quarter with cash and cash equivalents of $7,919 million, up 22% year over year. Short-term investments were $2,008 million, down 51% year over year. It had a long-term debt (excluding current maturities) of $8,930 million and shareholders’ equity of $14,146 million as of Nov 30, 2023.
As of Nov 30, 2023, inventories of $7,979 million declined 14% from the prior-year levels.
In second-quarter fiscal 2024, the company returned $1.7 billion to shareholders, including $1.2 billion in share repurchases and $523 million in dividends. With the share repurchases, it retired 11.9 million shares in the fiscal second quarter as part of the $18-billion share repurchase program approved by the company in June 2022. As of Nov 30, 2023, NIKE repurchased 65.9 million shares under the program for $7.1 billion.
Outlook
Going forward, management expects several risks related to the tough operating environment, including the stronger U.S. Dollar resulting in adverse currency translations, soft consumer demand over the holiday season and low second-half wholesale order books.
For the fiscal third quarter, NIKE anticipates revenue growth to slightly decline from double-digit growth in the prior year. The company estimates revenues to be up in the low-single digits for the fiscal fourth quarter.
The company lowered its guidance for fiscal 2024. For the fiscal year, NKE expects revenues to grow 1% compared with growth of mid-single digits mentioned earlier. The lowered view resulted from increased macro headwinds, mainly in Greater China and EMEA. The softness in these regions stemmed from the recently adjusted digital growth plans due to soft digital traffic trends and higher marketplace promotions. Also, the life cycle management of key product franchises, and a stronger U.S. dollar are expected to negatively impact second-half reported revenues versus 90 days ago.
The company expects the gross margin to expand 160-180 bps for the fiscal third quarter and 225-250 bps for the fiscal fourth quarter.
The fiscal 2024 gross margin is envisioned to expand 140-160 bps on a reported basis. The gross margin guidance reflects gains from strategic price increases, lower ocean freight rates and supply-chain efficiency. This is likely to be partially offset by higher product input costs and 60 bps of foreign exchange headwinds.
SG&A expenses for fiscal 2024 are predicted to decline in the low-single digits, excluding restructuring charges, backed by tight expense management, and improved productivity and efficiency. The company expects fiscal 2024 SG&A to increase in the mid-single digits, including the restructuring charge. NKE expects SG&A expenses in the fiscal third and fourth quarters to be modestly above its first-half run rate, excluding the restructuring charge.
The company expects restructuring charges of $400 million-$450 million in the second half of fiscal 2024, primarily related to severance costs, which will be recognized largely in the fiscal third quarter.
NKE anticipates other income and expenses, including net interest income, of $275-$325 million for fiscal 2024 compared with $225-$275 million mentioned earlier. The effective tax rate is forecast to be in the high teens for the fiscal year.
Looking ahead, the company expects strong gross margin execution and disciplined cost management to offset soft second-half revenues and drive earnings growth. Excluding restructuring charges, it anticipates delivering on its prior full-year earnings outlook.
Other Stocks to Consider
We have highlighted three other top-ranked stocks from the Consumer Discretionary sector, such as Rocky Brands (RCKY - Free Report) , GIII Apparel Group (GIII - Free Report) and lululemon athletica (LULU - Free Report) .
Rocky Brands, a leading designer, manufacturer and marketer of premium quality footwear and apparel, currently sports a Zacks Rank #1 (Strong Buy). Shares of RCKY have rallied 95.7% in the past three months. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Rocky Brands’ current financial year’s sales and earnings per share suggests declines of 24.5% and 46.8%, respectively, from the year-ago reported figures. RCKY has a trailing four-quarter earnings surprise of 17.2%, on average.
GIII Apparel, a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands, has a trailing four-quarter earnings surprise of 541.8%, on average. It currently flaunts a Zacks Rank #1.
The Zacks Consensus Estimate for GIII Apparel’s current financial-year earnings suggests growth of 33% from the prior-year actual. GIII shares have gained 40.1% in the past three months.
lululemon is a yoga-inspired athletic apparel company that creates lifestyle components. It currently carries a Zacks Rank #2 (Buy). Shares of LULU have risen 32.1% in the past three months.
The Zacks Consensus Estimate for LULU’s current financial-year sales and earnings suggests growth of 18.2% and 22.9%, respectively, from the year-earlier reported figures. LULU has a trailing four-quarter earnings surprise of 9.2%, on average.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
NIKE (NKE) Q2 Earnings Beat Estimates, Stock Dips on Soft View
NIKE Inc. (NKE - Free Report) reported second-quarter fiscal 2024 results, wherein earnings beat the Zacks Consensus Estimate. Moreover, the top and bottom lines improved year over year. Results particularly gained from robust retail sales across Nike Direct. NKE also continued to benefit from its business strategy, compelling product innovation and digital leadership.
In second-quarter fiscal 2024, the company’s earnings per share were $1.03, up 21% from the 85 cents reported in the year-ago quarter. Earnings also beat the Zacks Consensus Estimate of 84 cents.
Revenues of the Swoosh brand owner grew 1% year over year to $13,388 million but missed the Zacks Consensus Estimate of $13,395 million. On a currency-neutral basis, revenues were down 1% year over year.
NIKE, Inc. Price, Consensus and EPS Surprise
NIKE, Inc. price-consensus-eps-surprise-chart | NIKE, Inc. Quote
Sales at NIKE Direct improved 6% on a reported basis and 4% on a currency-neutral basis to $5.7 billion, driven by improved traffic at stores and online. The increase included 4% growth at NIKE Digital, on a reported basis and 1% growth on a currency-neutral basis. Additionally, NIKE Direct sales were aided by a 9% rise on a currency-neutral basis at NIKE stores. However, this was partly offset by a decline in wholesale revenues.
Wholesale revenues of $7.1 billion were down 2% from last year on a reported basis and 3% on a currency-neutral basis.
NIKE shares slumped 11.7% in the after-hours trading session on Dec 21, 2023, following the soft top-line performance in the fiscal second quarter and a bleak revenue outlook for the second half and fiscal 2024. Overall, shares of the Zacks Rank #2 (Buy) company have rallied 35.3% in the past three months compared with the industry’s growth of 26.9%.
Image Source: Zacks Investment Research
Operating Segments
The NIKE Brand revenues were $12.9 billion, up 1% year over year on a reported basis and flat on a currency-neutral basis. Results were driven by currency-neutral growth in Greater China and APLA, partially negated by declines in North America and EMEA.
We estimated total NIKE Brand revenues to increase 1.2% year over year to $12,872.7 million in the fiscal second quarter, driven by 2.2% growth in Direct-to-Consumer and a 0.5% rise in the Wholesale business.
Within the NIKE brand, revenues in North America fell 4% on a reported basis and 3% on a currency-neutral basis to $5,625 million. The decline can be mainly attributed to a 9% dip in the wholesale business. Sales for the NIKE Direct business were up 3% in the region, including a 2% increase at Nike Digital and 4% growth at Nike Stores.
In EMEA, the company’s revenues rose 2% on a reported basis and declined 3% on a currency-neutral basis to $3,567 million. The Wholesale business declined 8% year over year in the quarter. NIKE Direct revenues for the segment grew 7% on a currency-neutral basis, with 8% growth in Nike Stores and a 7% increase at Nike Digital.
In Greater China, revenues advanced 4% year over year on a reported basis and 8% on a currency-neutral basis in the fiscal second quarter to $1,863 million. The region has been witnessing strong brick-and-mortar sales, with continued improvement in full-price sales, and sales in Nike-owned and partner stores growing in the mid-teens. NIKE Direct fell 4% on a currency-neutral basis, while NIKE Digital revenues were down 22% year over year and Nike stores were up 16%. Moreover, Wholesale revenues grew 19%, driven by another quarter of strong sell-through.
In APLA, NIKE revenues rose 13% on a reported basis and 10% on a currency-neutral basis to $1,805 million. NIKE Direct advanced 15% on a currency-neutral basis, driven by a 17% hike in NIKE stores and 14% growth in Nike Digital. Southeast Asia and India, Korea, and Mexico led sales growth in the region during the fiscal second quarter.
Revenues at the Converse brand dropped 11% on a reported basis and 13% on a currency-neutral basis to $519 million. The decline was led by softness in North America and Europe, somewhat offset by growth in Asia.
Costs & Margins
The gross profit rose 5% year over year to $5,971 million, while the gross margin expanded 170 basis points (bps) to 44.6%. We anticipated the gross margin to expand 100 bps to 43.9%. The gross margin expansion can be attributed to the company’s effective pricing actions, reduced ocean freight costs, improved supply chain and slight markdown gains. This was partly negated by elevated input costs and an unfavorable currency impact of 60 bps.
Selling and administrative expenses increased 1% to $4,146 million, which marked an improvement from our estimate of a 5.8% increase to $4.4 billion. Better-than-expected SG&A expenses resulted from stringent expense management efforts and some shifts in the timing of expenses. As a percentage of sales, SG&A expenses were flat with the prior-year quarter at 31%.
Demand-creation expenses increased 1% year over year to $1,114 million, owing to elevated marketing expenses. Operating overhead expenses were almost flat year over year at $3,032 million on higher NIKE Direct variable costs, offset by lower spending on technology and wage-related expenses.
Our model predicted Demand Creation expenses of $1,190.1 million, which indicated year-over-year growth of 8%. Operating overhead expenses were anticipated to increase 5% year over year to $3,172.4 million.
Balance Sheet & Shareholder-Friendly Moves
The company ended the quarter with cash and cash equivalents of $7,919 million, up 22% year over year. Short-term investments were $2,008 million, down 51% year over year. It had a long-term debt (excluding current maturities) of $8,930 million and shareholders’ equity of $14,146 million as of Nov 30, 2023.
As of Nov 30, 2023, inventories of $7,979 million declined 14% from the prior-year levels.
In second-quarter fiscal 2024, the company returned $1.7 billion to shareholders, including $1.2 billion in share repurchases and $523 million in dividends. With the share repurchases, it retired 11.9 million shares in the fiscal second quarter as part of the $18-billion share repurchase program approved by the company in June 2022. As of Nov 30, 2023, NIKE repurchased 65.9 million shares under the program for $7.1 billion.
Outlook
Going forward, management expects several risks related to the tough operating environment, including the stronger U.S. Dollar resulting in adverse currency translations, soft consumer demand over the holiday season and low second-half wholesale order books.
For the fiscal third quarter, NIKE anticipates revenue growth to slightly decline from double-digit growth in the prior year. The company estimates revenues to be up in the low-single digits for the fiscal fourth quarter.
The company lowered its guidance for fiscal 2024. For the fiscal year, NKE expects revenues to grow 1% compared with growth of mid-single digits mentioned earlier. The lowered view resulted from increased macro headwinds, mainly in Greater China and EMEA. The softness in these regions stemmed from the recently adjusted digital growth plans due to soft digital traffic trends and higher marketplace promotions. Also, the life cycle management of key product franchises, and a stronger U.S. dollar are expected to negatively impact second-half reported revenues versus 90 days ago.
The company expects the gross margin to expand 160-180 bps for the fiscal third quarter and 225-250 bps for the fiscal fourth quarter.
The fiscal 2024 gross margin is envisioned to expand 140-160 bps on a reported basis. The gross margin guidance reflects gains from strategic price increases, lower ocean freight rates and supply-chain efficiency. This is likely to be partially offset by higher product input costs and 60 bps of foreign exchange headwinds.
SG&A expenses for fiscal 2024 are predicted to decline in the low-single digits, excluding restructuring charges, backed by tight expense management, and improved productivity and efficiency. The company expects fiscal 2024 SG&A to increase in the mid-single digits, including the restructuring charge. NKE expects SG&A expenses in the fiscal third and fourth quarters to be modestly above its first-half run rate, excluding the restructuring charge.
The company expects restructuring charges of $400 million-$450 million in the second half of fiscal 2024, primarily related to severance costs, which will be recognized largely in the fiscal third quarter.
NKE anticipates other income and expenses, including net interest income, of $275-$325 million for fiscal 2024 compared with $225-$275 million mentioned earlier. The effective tax rate is forecast to be in the high teens for the fiscal year.
Looking ahead, the company expects strong gross margin execution and disciplined cost management to offset soft second-half revenues and drive earnings growth. Excluding restructuring charges, it anticipates delivering on its prior full-year earnings outlook.
Other Stocks to Consider
We have highlighted three other top-ranked stocks from the Consumer Discretionary sector, such as Rocky Brands (RCKY - Free Report) , GIII Apparel Group (GIII - Free Report) and lululemon athletica (LULU - Free Report) .
Rocky Brands, a leading designer, manufacturer and marketer of premium quality footwear and apparel, currently sports a Zacks Rank #1 (Strong Buy). Shares of RCKY have rallied 95.7% in the past three months. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Rocky Brands’ current financial year’s sales and earnings per share suggests declines of 24.5% and 46.8%, respectively, from the year-ago reported figures. RCKY has a trailing four-quarter earnings surprise of 17.2%, on average.
GIII Apparel, a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands, has a trailing four-quarter earnings surprise of 541.8%, on average. It currently flaunts a Zacks Rank #1.
The Zacks Consensus Estimate for GIII Apparel’s current financial-year earnings suggests growth of 33% from the prior-year actual. GIII shares have gained 40.1% in the past three months.
lululemon is a yoga-inspired athletic apparel company that creates lifestyle components. It currently carries a Zacks Rank #2 (Buy). Shares of LULU have risen 32.1% in the past three months.
The Zacks Consensus Estimate for LULU’s current financial-year sales and earnings suggests growth of 18.2% and 22.9%, respectively, from the year-earlier reported figures. LULU has a trailing four-quarter earnings surprise of 9.2%, on average.