Why Nike Stock Drops Hard Today

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What happened

Nike (NKE -12.81%) released results for its first quarter of fiscal 2023 after the closing bell on Thursday, and investors didn’t like what they saw.

As the company beat analysts’ consensus high and low estimates, investors fear its stocks have risen significantly. Following the report, the retail stock fell and was down 10.2% as of 10:43 a.m. ET Friday.

So what

For the quarter, which ended August 31, Nike reported revenue of $12.7 billion, an increase of 4% over the prior year period, and ahead of the average Wall Street estimate of $12.3 billion.

Image source: Getty Images.

The company’s non-GAAP (adjusted) earnings were $0.93 per share, which beat analysts’ consensus estimate of $0.92, but was down 20% from the quarter. last year.

But it was the company’s stocks that caught the attention of investors. Nike said inventories on its balance sheet at the end of the quarter rose 44% year-over-year to $9.7 billion. In the earnings release, the company said the increase was “due to higher inventory in transit due to continued supply chain volatility, partially offset by strong consumer demand during the quarter. “.

Investors were also disappointed to see Nike’s gross margin shrink 2.2 percentage points from the year-ago quarter.

Now what

Unfortunately, shareholders received little reassurance from management regarding the company’s earnings announcement. Chief Financial Officer Matt Friend predicted that Nike’s margins will shrink by 4 percentage points in its second fiscal quarter as the company significantly cuts revenue.

“We expect second quarter gross margins to decline approximately 350 to 400 basis points from a year ago, the most significant impact on the fiscal year as we refresh off-season revenue from more aggressively in a largely promotional market,” he said. “This will require higher markdowns in our own channels and through wholesale partners.”

Retail investors had already worried about the state of the US economy, and Nike’s latest financial results did little to allay their concerns.

chris snower has no position in the stocks mentioned. The Motley Fool holds positions and endorses Nike. The Motley Fool has a disclosure policy.

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