Nike (NKE) reports fiscal Q3 2022 earnings

Nike shares rose more than 5% in extended trading Monday as the sneaker retailer’s fiscal third-quarter results topped analysts’ estimates due to robust demand in North America.

But with lingering uncertainties around inflation, a war overseas and clogged supply chains, Nike is holding off giving its outlook for the coming year until it reports fiscal fourth quarter results.

“We are focused on what we can control,” said Chief Financial Officer Matthew Friend, on a post-earnings conference call. “There are several new dynamics creating higher-levels of volatility.”

Given its global reach, Nike is serving as somewhat of a bellwether of how other retailers are managing challenges such as elevated oil prices, inflation, crippled supply chains and global unrest driven by Russia’s invasion of Ukraine.

Nike’s China business is also on watch. A boycott among Chinese consumers toward Western brands caused Nike’s sales to take a hit early last year, and it’s still in recovery mode. Nike has prioritized North America, its biggest market, over China during the pandemic when supplies have been tight.

In its third quarter, Nike said sales in North America climbed 9%. Sales in Greater China, the company’s third-biggest market behind its Europe, Middle East and Africa segment, fell 5% from the prior year.

For its current fiscal year, Nike reiterated its expectations for sales to grow mid-single-digits from the prior 12-month period. Analysts had forecast revenue to be up 5.3%, according to Refinitiv data.

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

  • Earnings per share: 87 cents vs. 71 cents expected
  • Revenue: $10.87 billion vs. $10.59 billion expected

Nike reported net income for the three-month period ended Feb. 28 of $1.4 billion, or 87 cents per share, compared with $1.45 billion, or 90 cents a share, a year earlier. That topped profit estimates for 71 cents a share, according to Refinitiv data.

Sales rose 5% to $10.87 billion from $10.36 billion a year earlier, beating analysts’ expectations for $10.59 billion.

The better-than-expected results proved Nike’s ability to operate in a volatile environment, CEO John Donahoe said in a press release. “Marketplace demand continues to significantly exceed available inventory supply,” he added.

Friend told analysts on a post-earnings call that Nike’s revenue growth would have been even stronger over the holiday period had Nike had enough merchandise on hand to meet shopper demand. All of its factories in Vietnam are now operational, he said, following pandemic-driven shutdowns that stalled manufacturing.

Transportation times, however, remain elevated, particularly in North America. Friend said that Nike has moved up its buying timelines in order to have enough products on shelves for later this fall.

As of Feb. 28, Nike said inventories on its balance sheet totaled $7.7 billion, up 15% from the prior-year period, in part due to ongoing supply chain disruptions that have elongated transit times, the company said. The bloated inventory levels were partially offset by robust consumer demand, it said.

Nike’s gross margins increased slightly to 46.6% from 45.6% the prior year, thanks to more full-price selling.

Nike has increasingly shifted its business away from wholesalers and instead to selling more goods directly to consumers. Foot Locker, for example, recently said it would lose a percentage of Nike merchandise in the coming years. In turn, Nike has been investing heavily in its website and flagship stores to win sales.

Wholesale revenue in the third quarter fell 1%, while Nike’s store sales rose 14% year over year, as shopper traffic “normalized,” the company said.

Friend said Monday that, at this point, Nike has finished communicating the “big account pivots” to all of its wholesale partners.

Nike’s digital sales in the latest quarter rose 19% from the prior year, fueled by 33% growth in North America. Donahoe told analysts on the earnings call that Nike will continue to grow its presence in the so-called digital metaverse, through its tie-up with Roblox as well as its acquisition of the virtual sneaker marker RTFKT.

As of Monday’s market close, Nike shares are down 22% this year.

Find the full earnings press release from Nike here.

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