February 24, 2024
London, UK

Nike Drops on High Inventories – Low Margins

NKE Nike

Nike NKE drops over 10% in premarket trading after the company reported the first fiscal quarter that disappointed investors due to rising inventories and low margins

Nike’s net income drops 22% to $1.5bn or $0.90 per share for the fiscal quarter ending August 2022. The previous quarter’s net income was 1.51 billion or $0.93 per share. The revenues increased 4% to 12.7$ billion topping analysts’ expectations.

Inventories increased by 44% to $9.7 billion as the number of goods in transit increased due to difficulties in the supply chain. The company’s gross margin fell to 44.3% driven by rising logistics costs and lower margins from markdowns and the strong U.S dollar. Forex negative impact will cost $4 billion in revenues and $900 million in EBIT. NKE was forced to liquidate the extra inventory through wholesale and Direct sales.

Revenue in North America rose 15% to $5.5 billion. Sales in Europe, Middle East & Africa rose 9% to US$3.25 billion. China sales were 16% lower over the year to $1.65 billion.

Analyst Reaction to Nike Earnings

Jefferies in a research report following the earnings report cut the Nike price target from $130 to $115.

Cowen also cut the stock price target from $127 to $124.

Wedbush analyst T. Nikic kept the Outperform rating and reduced the stock price target from $121 to $101.

Gabriella Carbone, Deutsche Bank analyst keeps the Buy at Nike but cut the price target from $123 to $99.

RBC Capital Markets analyst Piral Dadhania, reduced the stock price target down from $125 to $115.

Nike stock finished yesterday’s trading session 3.41% lower at $95.33. The stock is down 5.78% in the quarter and 42.80% since the beginning of the year 2022 underperforming the broader market. S&P500 has lost 23.62 since January 1, 2022.

The technical picture for the stock has deteriorated since September 12 when the stock broke below the 50-day moving average for the second time.

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