Nike stock slides as margin pressures offset pace of fourth quarter earnings

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Updated at 10:03 am est

Nike (NKE) – Get the report from Nike Inc. Shares fell on Tuesday after the world’s largest sportswear group warned that soaring transportation costs, along with a strong U.S. dollar, would eat into profit margins in its next fiscal year.

Nike posted higher-than-expected fourth-quarter earnings of 91 cents a share on Monday, with revenue above $12.24 billion, as strong gains in its direct-to-consumer business offset a sales slump related to Covid in China.

Gross profit margins narrowed 80 basis points to 45%, just below Street’s estimate of 46.6%, as input and transportation costs rose. North America revenue was down 5%, but direct-to-consumer sales were up 7%, helping to offset both the impact of a stronger US dollar and lower sales in China Covid-related.

The group’s shares fell, however, after forecasting fiscal 2023 revenue to rise by “low single digits” from 2022 levels, thanks in part to headwinds from a stronger US dollar. strong, with profit margins dropping as much as 50 basis points. points.

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“As we look at the strength and momentum of our brand, our product portfolio against some of the biggest growth opportunities we have, we believe we are well positioned for growth in FY23.” , Chief Financial Officer Matthew Friend told investors on a conference call. late Monday.

“That said, we have taken a cautious approach to Greater China, and we do so because as we review what disrupted our performance in the fourth quarter and focus on what we can control, we believe that prioritizing healthy market pull is the right action for us given the ongoing risk we see in this market.”

Shares of Nike fell 2.6% in Tuesday morning trading to change hands at $107.66 apiece, a move that would extend the stock’s year-to-date decline to around 35.5. %.

Inventories also rose, rising 23% from a year ago to $8.4 billion, in part due to extended lead times due to supply chain disruptions, with the group noting that it ” has made some adjustments to our plans around shrinkage rates and partnering with our wholesale partners to ensure we are removing some inventory that is not owned by Nike but is in the market.”

Last week, Nike, which suspended operations in its stores and e-commerce channels in Russia and Ukraine earlier this year, said it would scale back operations over the next few months and leave the county permanently. Nike said the move would result in a charge of around $150 million.

The move follows similar moves by blue-chip US companies such as Starbucks SBUX and McDonald’s MCD, which sold their Russia business earlier this month and took a non-monetary hit of around $1.3 billion. dollars.

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