Nike surged Tuesday following its fiscal third-quarter earnings report late Monday, as China's coronavirus lockdowns raise investor concerns about the sneaker maker's ability to ship gear to consumers.
Nike stock popped more than 6% early Tuesday, paring gains to near 2% at the close. The athletic shoe-and-apparel giant reports as it tries to sell more of those goods to shoppers directly, backing away from other retailers in the process.
Nike Earnings
Estimates: Wall Street expected Nike earnings to slide 21% to 71 cents per share. Sales were seen increasing 2% to $10.598 billion.
Results: Earnings came in at 87 cents per share — down 3%. Revenue rose more than 5%, to $10.9 billion.
Direct to consumer sales jumped 15% to $4.6 billion. Nike brand digital sales swung 19% higher. That included a 22% increase in North America.
"We have the right playbook to navigate volatility and create value through our relentless drive to serve the future of sport," said President and CEO John Donahoe.
Higher freight and logistics costs continued to pressure profit. But inventories were up 15%, and production of apparel and footwear by Vietnam factories had returned to pandemic-related interruptions late last year.
Revenue guidance pointed to mid-single-digit growth for 2022. Analysts adjusted price targets up and down, but generally maintained buy and outperform ratings. A Citi note said events in Russia/Ukraine and China's most recent Covid lockdowns make Nike's fiscal 2023 outlook "blurry."
Nike Stock
Nike stock opened almost 7% higher on Tuesday, before trimming gains to near 2.2% at the closing bell. Shares rallied 7% last week, marking the stock's biggest advance since it began falling in early November. The pullback from Tuesday's high suggested possible resistance around Nike's 50-day moving average — below which it has traded since late December.
The shares have a 47 Composite Rating. Their EPS Rating is 64.
Nike stock has taken a hit from the U.S. supply-chain difficulties, after the pandemic left that global distribution network disjointed. Port and factory shutdowns in China and Vietnam added to the difficulties for Nike.
In Nike's fiscal 2021, factories in Vietnam made around 51% of the company's footwear. Meanwhile, China accounted for around 21%.
China, Russia Exposure
China is trying to manage its worst wave of Covid since early 2020. New lockdowns, an effort to stamp out infections under its zero-tolerance policy, have taken hold in several cities. Some factories have curbed or halted production.
"Supply delays worsened in 3Q for the industry, and we do not think Nike was immune," BofA Securities analyst Lorraine Hutchinson, who covers Nike stock, said in a research note on Tuesday. "Recent COVID lockdowns in China's Shenzhen region could lead to port disruption for the industry and is something to watch."
Elsewhere, she said that Nike should be able to handle any impact on business from Russia's invasion of Ukraine. The company had sales exposure to Russia and Eastern Europe of 4%. She she'd be watching for signs of how the invasion is affecting consumer confidence in Western Europe.
'Accelerated Strategic Shift'
Nike is also trying to sell more products directly to shoppers, through digital channels and its own stores. The company said it would stop selling shoes at shoe retailer DSW this year, and it has parted ways with others.
Shoe and sportswear retailer Foot Locker also recently signaled a pullback from Nike, a major sales driver for the chain. In 2020, around 75% of the merchandise Foot Locker bought came from Nike.
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Foot Locker CFO Andrew Page said last month that starting in the chain's fourth quarter, it did not expect "any one vendor to comprise more than 55% of our product spend."
"This change reflects Nike's accelerated strategic shift to (direct to consumer) and Foot Locker's ongoing brand and category diversification efforts," CFO Andrew Page said. "For the full year of 2022, this would equate to approximately 60% Nike concentration, down from 70% for 2021 and 75% for 2020."
Nike CFO Matthew Friend, in September, said "the supply-related reductions will likely trigger an even greater acceleration in the transformation of the marketplace toward Nike and our most important wholesale partners."
