Why Nike Stock Dropped Today

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What happened

Shares of Nike (NKE 0.80% ) fell 6.2% on Friday following the release of the sportswear titan’s fiscal 2022 first quarter results and subsequent conference call.

So what

Nike revenue grew 16% year over year to $12.2 billion. The gains were fueled by a 28% increase in Nike’s direct sales — which include physical retail stores and company-owned digital channels — to $4.7 billion.

“Nike’s strong results this quarter are continued proof of our deep relationships with consumers, our pipeline of relentless innovation and a digital advantage that fuels our brand momentum,” CEO John Donahoe said in a statement. Press release.

Nike’s stock price fell despite posting strong earnings growth indicators. Image source: Getty Images.

Even better, gains from Nike’s higher-margin direct-to-consumer business helped boost its overall gross margin by 1.7 percentage points to 46.5%. That contributed to a 22% rise in the company’s earnings per share to $1.16.

“Our first quarter results illustrate how Nike’s direct-to-consumer acceleration strategy continues to fuel growth and transform our long-term financial model,” said Chief Financial Officer Matt Friend.

Now what

Investors, however, seemed to be focused on Nike’s reduced sales forecast for the full year. Friend told a conference with analysts that coronavirus-related shutdowns in Vietnam and other countries were causing delays in its supply chain. These production challenges will likely lead to stock-outs in the coming months. Management, in turn, now expects Nike’s revenue growth to grow in “mid-single digits” rather than its previous estimate of low double-digits.

Still, these supply chain issues are expected to be transitory, and management remains confident in Nike’s long-term future. “Our competitive advantages, including our innovative product, brand strength fueled by compelling storytelling, our roster of the world’s top athletes and, increasingly, our industry-leading digital experiences in retail, will continue to create a separation,” Donahoe said.

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