Nike stock rises 5% after earnings and sales slump, but China’s slump continues

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Nike Inc. reported higher-than-expected earnings and sales on Monday, pushing shares higher after hours despite concerns over falling sales in China.

Nike NKE,
-0.53%
reported fiscal third-quarter earnings of $1.4 billion, or 87 cents per share, from 90 cents per share a year ago. Revenue for the period, which ended Feb. 28, increased to $10.87 billion from $10.36 billion a year ago. Analysts on average had expected earnings of 71 cents per share on sales of $10.6 billion, according to FactSet.

The shares gained more than 5% in extended trading immediately after the earnings release.

Nike executives attributed the continued progress in direct-to-consumer sales to the reason for higher sales and a gross margin of 46.6% for the quarter, up 100 basis points from the same period a year ago.

“Nike’s strong results this quarter demonstrate that our Consumer Direct Acceleration strategy is working, as we invest to realize our growth opportunities,” chief executive John Donahoe said in a statement.

Nike Direct sales were up 17% year over year, executives said, with revenue from Nike-owned stores up 14% and digital sales up 22%. While Nike benefited from a focus on selling its own merchandise, the move hurt some retail partners, such as Foot Locker Inc. FL,
-0.39%.

“In Western markets, the move towards a higher-margin, higher-yield business model is accelerating as exceptionally low market inventories drive consumer adoption of [direct-to-consumer] digital,” Stifel analysts said in a report preview last week, while lowering their price target to $160 from $202 and maintaining a Buy rating.

One of analysts’ concerns was the advance in other markets, namely China. Greater China was the only geography to show a year-over-year decline in sales in Monday’s report, falling 5% to $2.16 billion.

“We believe the challenges in the Chinese market are being priced in by the market and reflected in the recent pullback in Nike shares,” Stifel analysts wrote, adding that they do not expect sales in China to continue. straighten before the next exercise.

Shares of Nike have suffered on concerns over sales in China, falling 21.9% so far this year as the S&P 500 SPX index,
-0.16%
lost 6.4% and the Dow Jones Industrial Average DJIA,
+0.23%,
which counts Nike as a component, fell 4.4%.

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