Markets

Nike shares surge on robust third-quarter sales

Stock poised for biggest gain in more than a year after holiday season momentum continues through early December

Nike's third-quarter sales beat analyst expectations. Photograph: Getty Images

Wed Dec 21 2022 - 08:36

Nike shares were poised for their biggest gain in more than a year after the retailer’s quarterly sales exceeded Wall Street estimates and bloated inventory stockpiles showed signs of improvement.

Global revenue rose 17 per cent to $13.3 billion (€12.5 billion) in the quarter ended November 30th, about $700 million more than analysts had projected. Gross margin, a key gauge of profitability, also exceeded expectations, and executives said year-end performance was strong.

“Our holiday season momentum has continued through the first few weeks of December, despite operating in a largely promotional marketplace, chief financial officer Matt Friend said during a conference call.

The shares rose 13 per cent in New York on Wednesday. If the increase holds, Nike will be set for the biggest gain since June 25th, 2021, and at the current price, is poised to add more than $21 billion of market cap. The stock had declined 38 per cent this year through Tuesday’s close.

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While inventories jumped 43 per cent from a year earlier, that was a slight improvement from last quarter’s 44 per cent increase. Company executives said the number is inflated by abnormally low levels a year ago when pandemic measures in the manufacturing hub of Vietnam and long freight times disrupted retail businesses worldwide.

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Wedbush analysts said Nike’s inventory situation is getting better with apparel clearance units declining over the past 90 days. Meaningful improvement has been seen in North America, which “is key because the domestic business had the biggest inventory glut”, wrote Tom Nikic in a note.

Excess merchandise at Nike and across the apparel industry has prompted promotional activity that has eroded profitability. Nike’s gross margin fell 300 basis points to 42.9 per cent as management moved aggressively to liquidate inventory, especially in North America. The company plans to sell excess merchandise via off-price retailers through the rest of the year.

Advertising delivers

Nike upped spending on marketing in an effort to lure in more shoppers. So-called demand-creation expenses were up 8 per cent in the quarter to $1.1 billion, mostly due to a spike in advertising.

Sales beat expectations in all regions except for China. Nike said demand for its products grew there, but it experienced significant disruption due to Covid lockdowns. Executives said they’re closely monitoring the situation as the government eases its zero-Covid policy.

For the full fiscal year, which ends in mid-2023, Nike sees revenue growth in the low teens on a currency-neutral basis. The company maintained its projection that gross margin will fall 200 to 250 basis points. — Bloomberg

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