Overall, revenue increased by 1 percent to $13.4 billion. However, analysts had expected a little more. Nike is expecting a slight decline in sales in the current quarter, it said. Revenues are expected to rise again in the fourth quarter, but only by a low single-digit percentage.
Sales in the Greater China region also missed expectations despite a 4 percent increase. Investors are looking closely at sales in the People’s Republic of China and Taiwan. There are fears of a decline in consumer spending there. Nike executives have repeatedly expressed optimism about a recovery so far this year. However, investors’ existing skepticism could now increase.
The bottom line was that profit increased by 19 percent to $1.6 billion. Inventories fell 14 percent to $8 billion.
Nike announced $2 billion in cost cuts, which will result in a pretax charge of $400 million to $450 million. These costs, which are mainly incurred for severance pay for laid-off employees, are likely to be recorded primarily in the current quarter.
This is how Nike shares react
The US sports fashion manufacturer had a nasty surprise for the entire industry before Christmas. The group disappointed investors with its statements on sales development. The shares ultimately fell by 11.83 percent to $108.03 on Friday as the clear bottom performer in the Dow Jones Industrial.
Nike shocked the entire industry with its news. The European retail sector was the second weakest on the sector table. In the European leading index EURO STOXX 50, adidas shares fell by 5.29 percent to 184.14 euros. In New York, Foot Locker investors had to cope with a loss of 3.93 percent. Dick’s Sporting Goods fell 2.75 percent and Under Armor fell 3.52 percent.
Nike expects a slight decline in sales in the current quarter. Revenues are expected to rise again in the fourth quarter, but only by a low single-digit percentage. Despite an increase, sales in the important Greater China region missed market expectations.
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“The depressed sales outlook is likely to be the focus,” wrote expert Randal Konik from the analysis company Jefferies, with a view to the reaction of investors. The past second quarter shows weakening demand. “That’s not good,” said the expert, especially with a view to declining demand in North America.
Analyst Matthew Boss from JPMorgan noted that Nike only expects sales to increase by one percent in 2024. This compares to a consensus estimate of plus 3.7 percent. The company is facing headwinds from the economic situation in China and also in the Europe, Middle East and Africa region. Sales on the increasingly important digital sales channels are characterized by discounts and purchase incentives.
Nike management has now announced a program with which it wants to reduce costs by up to two billion US dollars over the next three years. The majority of the savings should flow into future growth. Nike wants to simplify the product range, promote automation and slim down the organization.
The simplification of the structure will reportedly result in a pre-tax charge of $400 million to $450 million. The costs mainly relate to severance payments for laid-off employees and are expected to be recorded primarily in the current quarter.
With the sales outlook and the news about cost reductions, Nike has put a damper on the recent price rally, wrote expert Aneesha Sherman from the analysis company Bernstein Research. In their view, however, it is more about macroeconomic issues than about company-specific issues. The margin story appears positive and management is investing in growth. The share price correction is painful for now, but with a view to 2024 the paper should now be well supported.
The price slide on Friday sent Nike shares back to their level at the end of November. From a chart perspective, the 21-day average line was clearly broken. It is considered a measure of short-term development. The price found a footing near the much-noticed 200-day line. It gives signals for the long-term trend.
RBC does not change Nike price target
The Canadian bank RBC has left Nike at “Outperform” with a price target of 127 US dollars after quarterly figures and a lowered outlook. The gross margins and especially the earnings figures of the US sporting goods manufacturer were a positive surprise, wrote analyst Piral Dadhania in a study available on Friday. But the market is likely to focus on the lowered sales target for the fiscal year and the announced $2 billion savings program. He expects 2024 to be a year of recovery for the industry and that Nike, as the global number one, has structural competitive advantages. He is also optimistic about a medium-term recovery in China business.
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BEAVERTON (dpa-AFX) /
NEW YORK (dpa-AFX Broker)
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