Nike Q4 earnings are ‘not suggestive of a recession’

Nike Inc (NYSE: NKE) ticked lower in extended hours after reporting weaker-than-expected earnings for its fourth financial quarter.

Why else is Nike stock down in after hours?

Shareholders are also a bit unsettled because higher costs, increased markdowns, and currency headwinds resulted in a 140 basis points hit to gross margins that stood at 43.6% in Q4. Still, Oppenheimer analyst Brian Nagel said on Yahoo Finance Live:

I think it’s a pretty solid report … It’s not suggestive of a recession. It’s reassuring that Nike brand is intact, that consumer is reacting to this brand positively. Nike is actually performing well here.

His outperform rating on Nike stock comes with a $150 price target that suggests about a 40% upside from here.

Nike Q4 earnings snapshot

• Earned $1.03 billion versus the year-ago $1.44 billion
• Per-share earnings also slipped from 90 cents to 66 cents
• Revenue climbed 5.0% year-over-year to $12.83 billion
• Consensus was 68 cents a share on $12.58 billion revenue
• Returned $1.9 billion in dividends and share repurchase

Wholesale revenue came in down 2.0% in the recently concluded quarter. Nike stock is now down 10% versus the start of 2023.

What else was noteworthy in the earnings report?

Nike ended the quarter with $8.45 billion worth of inventory – roughly the same as a year ago. Oppenheimer’s Nagel added:

Inventory debacle that Wall Street and investors were worried about didn’t happen. We’re past the point that inventories will spur promotions and impact growth margins significantly from here.

It is also noteworthy that inventory was actually down sequentially from $8.9 billion, as per the earnings press release. Nike’s direct sales also went up 15% to $5.5 billion in Q4.

More importantly, the athletic footwear and apparel company noted a 16% boost to revenue in China versus an 8.0% decline in the prior quarter. According to the Oppenheimer analyst:

It seems like there’s a nice progression here. That’s been a big focal point for us as investors. 16% is still light. But I think directionally it’s where the market wants to see it.