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NIKE (NKE) Q3 Earnings Surpass Estimates, Revenues Up Y/Y
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NIKE Inc. (NKE - Free Report) reported third-quarter fiscal 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. Moreover, sales 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 third-quarter fiscal 2024, the company’s earnings per share (EPS) were 98 cents, down 3% from the year-ago quarter. However, the figure beat the Zacks Consensus Estimate of earnings of 69 cents per share.
Revenues of the Swoosh brand owner grew 1% year over year to $12,429 million and surpassed the Zacks Consensus Estimate of $12,272 million. On a currency-neutral basis, revenues were slightly up year over year.
Sales at NIKE Direct improved slightly both on a reported basis and currency-neutral basis to $5.4 billion, driven by improved traffic at stores and online. The increase included a 3% drop at NIKE Digital, on a reported basis, and a 4% decline on a currency-neutral basis. Also, wholesale revenues grew 3% to $6.6 billion.
Overall, shares of the Zacks Rank #3 (Hold) company have gained 12.1% in the past six months compared with the industry’s 9% growth.
Operating Segments
The NIKE Brand revenues were $11.9 billion, up 2% year over year on a reported basis and currency-neutral basis. Results were driven by currency-neutral growth in North America, Greater China and APLA, partially negated by declines in EMEA.
We estimated total NIKE Brand revenues to drop 0.2% year over year to $11.7 billion in the fiscal third quarter, driven by a 1.3% drop in Direct-to-Consumer and a 0.8% rise in the Wholesale business.
Within the NIKE brand, revenues in North America rose 3% year over year to $5.6 billion. Sales for the NIKE Direct business were up 2% in the region, including a 1% increase at Nike Digital and 3% growth at Nike Stores. Wholesale sales grew 5%.
In EMEA, the company’s revenues fell 4% to $3.6 billion. The Wholesale business declined 8% year over year in the quarter. NIKE Direct revenues for the segment dipped 4%, with 6% growth in Nike Stores and a 10% decrease at Nike Digital.
In Greater China, revenues advanced 6% year over year in the fiscal third quarter to $1.9 billion. NIKE Direct fell 1%, while NIKE Digital revenues were down 13% year over year and Nike stores were up 6%. Moreover, Wholesale revenues grew 12%, driven by another quarter of strong sell-through. Retail sales with the company’s partners rose double digits year over year.
In APLA, NIKE revenues rose 4% year over year to $1.8 billion. NIKE Direct advanced 4% on a currency-neutral basis, driven by an 18% hike in NIKE stores and 6% drop in Nike Digital.
Revenues at the Converse brand dropped 19% on a reported basis and 20% on a currency-neutral basis to $495 million. The decline was led by softness in North America and Europe.
Costs & Margins
The gross profit rose 4% year over year to $5.6 billion, while the gross margin expanded 150 basis points (bps) to 44.8%. We anticipated the gross margin to expand 160 bps to 44.9%. The gross margin expansion can be attributed to the company’s effective pricing actions, and reduced ocean freight and logistics costs, partly negated by elevated input costs and restricting charges.
Selling and administrative expenses increased 7% to $4.2 billion, which marked an increase from our estimate of a 3.9% increase to $4.1 billion.
Demand-creation expenses increased 10% year over year to $1 billion, owing to elevated marketing expenses. Operating overhead expenses were up 6% year over year to $3.2 billion on restructuring charges, somewhat offset by wage-related expenses.
Our model predicted Demand Creation expenses of $1 billion, which indicated year-over-year growth of 9.6%. Operating overhead expenses were anticipated to increase 2.1% year over year to $3.1 billion.
Balance Sheet & Shareholder-Friendly Moves
The company ended the quarter with cash and cash equivalents of $9 billion, up nearly 29% year over year. Short-term investments were $1.6 billion, down 58% year over year. It had a long-term debt (excluding current maturities) of $8.9 billion and shareholders’ equity of $14.2 billion as of Feb 29, 2024.
As of Feb 29, 2024, inventories of $7.7 billion declined 13% from the prior-year levels.
In third-quarter fiscal 2024, the company returned $1.4 billion to shareholders, including $866 million in share repurchases and $562 million in dividends. With the share repurchases, it retired 7.9 million shares in the fiscal third quarter as part of the $18-billion share repurchase program approved by the company in June 2022. As of Feb 29, 2024, NIKE repurchased 73.8 million shares under the program for $8 billion.
Outlook
Management expects Q4 revenues to rise slightly, reflecting few shipment timing benefits in the reported quarter and lower digital growth owing to the franchise lifecycle management. The fourth quarter is likely to witness one point of adverse impact on reported revenues from a stronger U.S. dollar.
The guidance includes restructuring charges of about $450 million in the second half, with $403 million incurred in the third quarter. This impacts SG&A by nearly 15 bps of impact to full-year gross margin. It expects Q4 gross margins to increase approximately 150-180 bps. This reflects benefits from strategic price increases, lower ocean freight rates, reduced product input costs and supply-chain efficiency, partly offset by elevated markdowns, lower benefits from channel mix owing to the franchise lifecycle management and worsening foreign exchange fluctuations.
For fiscal 2024, revenues and earnings are likely to grow year over year, with higher operating margins, excluding the impact of the restructuring charges. However, it projects revenues to decline by low single digits in the first half. In fiscal 2024, the gross margin will expand approximately 120 bps, including 50 bps from currency headwinds. SG&A expenses will rise in the low single digits, comprising restructuring charges. Excluding these charges, SG&A is likely to be roughly flat.
GIII Apparel has a trailing four-quarter earnings surprise of 541.8%, on average. The Zacks Consensus Estimate for GIII’s fiscal 2024 EPS indicates an increase of 33% from the year-ago period’s reported level.
Crocs carries a Zacks Rank #2 (Buy), at present. CROX has a trailing four-quarter earnings surprise of 17.4%, on average.
The Zacks Consensus Estimate for Crocs’ 2023 sales and EPS indicates increases of 11.4% and 8.6%, respectively, from the year-ago period’s reported levels.
lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2, at present.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 18.2% and 22.8%, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 9.2%, on average.
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NIKE (NKE) Q3 Earnings Surpass Estimates, Revenues Up Y/Y
NIKE Inc. (NKE - Free Report) reported third-quarter fiscal 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. Moreover, sales 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 third-quarter fiscal 2024, the company’s earnings per share (EPS) were 98 cents, down 3% from the year-ago quarter. However, the figure beat the Zacks Consensus Estimate of earnings of 69 cents per share.
Revenues of the Swoosh brand owner grew 1% year over year to $12,429 million and surpassed the Zacks Consensus Estimate of $12,272 million. On a currency-neutral basis, revenues were slightly up year over year.
Sales at NIKE Direct improved slightly both on a reported basis and currency-neutral basis to $5.4 billion, driven by improved traffic at stores and online. The increase included a 3% drop at NIKE Digital, on a reported basis, and a 4% decline on a currency-neutral basis. Also, wholesale revenues grew 3% to $6.6 billion.
NIKE, Inc. Price, Consensus and EPS Surprise
NIKE, Inc. price-consensus-eps-surprise-chart | NIKE, Inc. Quote
Overall, shares of the Zacks Rank #3 (Hold) company have gained 12.1% in the past six months compared with the industry’s 9% growth.
Operating Segments
The NIKE Brand revenues were $11.9 billion, up 2% year over year on a reported basis and currency-neutral basis. Results were driven by currency-neutral growth in North America, Greater China and APLA, partially negated by declines in EMEA.
We estimated total NIKE Brand revenues to drop 0.2% year over year to $11.7 billion in the fiscal third quarter, driven by a 1.3% drop in Direct-to-Consumer and a 0.8% rise in the Wholesale business.
Within the NIKE brand, revenues in North America rose 3% year over year to $5.6 billion. Sales for the NIKE Direct business were up 2% in the region, including a 1% increase at Nike Digital and 3% growth at Nike Stores. Wholesale sales grew 5%.
In EMEA, the company’s revenues fell 4% to $3.6 billion. The Wholesale business declined 8% year over year in the quarter. NIKE Direct revenues for the segment dipped 4%, with 6% growth in Nike Stores and a 10% decrease at Nike Digital.
In Greater China, revenues advanced 6% year over year in the fiscal third quarter to $1.9 billion. NIKE Direct fell 1%, while NIKE Digital revenues were down 13% year over year and Nike stores were up 6%. Moreover, Wholesale revenues grew 12%, driven by another quarter of strong sell-through. Retail sales with the company’s partners rose double digits year over year.
In APLA, NIKE revenues rose 4% year over year to $1.8 billion. NIKE Direct advanced 4% on a currency-neutral basis, driven by an 18% hike in NIKE stores and 6% drop in Nike Digital.
Revenues at the Converse brand dropped 19% on a reported basis and 20% on a currency-neutral basis to $495 million. The decline was led by softness in North America and Europe.
Costs & Margins
The gross profit rose 4% year over year to $5.6 billion, while the gross margin expanded 150 basis points (bps) to 44.8%. We anticipated the gross margin to expand 160 bps to 44.9%. The gross margin expansion can be attributed to the company’s effective pricing actions, and reduced ocean freight and logistics costs, partly negated by elevated input costs and restricting charges.
Selling and administrative expenses increased 7% to $4.2 billion, which marked an increase from our estimate of a 3.9% increase to $4.1 billion.
Demand-creation expenses increased 10% year over year to $1 billion, owing to elevated marketing expenses. Operating overhead expenses were up 6% year over year to $3.2 billion on restructuring charges, somewhat offset by wage-related expenses.
Our model predicted Demand Creation expenses of $1 billion, which indicated year-over-year growth of 9.6%. Operating overhead expenses were anticipated to increase 2.1% year over year to $3.1 billion.
Balance Sheet & Shareholder-Friendly Moves
The company ended the quarter with cash and cash equivalents of $9 billion, up nearly 29% year over year. Short-term investments were $1.6 billion, down 58% year over year. It had a long-term debt (excluding current maturities) of $8.9 billion and shareholders’ equity of $14.2 billion as of Feb 29, 2024.
As of Feb 29, 2024, inventories of $7.7 billion declined 13% from the prior-year levels.
In third-quarter fiscal 2024, the company returned $1.4 billion to shareholders, including $866 million in share repurchases and $562 million in dividends. With the share repurchases, it retired 7.9 million shares in the fiscal third quarter as part of the $18-billion share repurchase program approved by the company in June 2022. As of Feb 29, 2024, NIKE repurchased 73.8 million shares under the program for $8 billion.
Outlook
Management expects Q4 revenues to rise slightly, reflecting few shipment timing benefits in the reported quarter and lower digital growth owing to the franchise lifecycle management. The fourth quarter is likely to witness one point of adverse impact on reported revenues from a stronger U.S. dollar.
The guidance includes restructuring charges of about $450 million in the second half, with $403 million incurred in the third quarter. This impacts SG&A by nearly 15 bps of impact to full-year gross margin. It expects Q4 gross margins to increase approximately 150-180 bps. This reflects benefits from strategic price increases, lower ocean freight rates, reduced product input costs and supply-chain efficiency, partly offset by elevated markdowns, lower benefits from channel mix owing to the franchise lifecycle management and worsening foreign exchange fluctuations.
For fiscal 2024, revenues and earnings are likely to grow year over year, with higher operating margins, excluding the impact of the restructuring charges. However, it projects revenues to decline by low single digits in the first half. In fiscal 2024, the gross margin will expand approximately 120 bps, including 50 bps from currency headwinds. SG&A expenses will rise in the low single digits, comprising restructuring charges. Excluding these charges, SG&A is likely to be roughly flat.
Key Consumer Discretionary Picks
Some better-ranked companies are G-III Apparel Group (GIII - Free Report) , Crocs (CROX - Free Report) and lululemon athletica (LULU - Free Report) .
G-III Apparel sports a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
GIII Apparel has a trailing four-quarter earnings surprise of 541.8%, on average. The Zacks Consensus Estimate for GIII’s fiscal 2024 EPS indicates an increase of 33% from the year-ago period’s reported level.
Crocs carries a Zacks Rank #2 (Buy), at present. CROX has a trailing four-quarter earnings surprise of 17.4%, on average.
The Zacks Consensus Estimate for Crocs’ 2023 sales and EPS indicates increases of 11.4% and 8.6%, respectively, from the year-ago period’s reported levels.
lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2, at present.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 18.2% and 22.8%, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 9.2%, on average.