Nike (NKE) reports fiscal Q3 2022 earnings

Nike on Monday reported earnings and sales for the fiscal third quarter that topped analysts’ estimates, thanks to robust demand in North America as consumers headed back to stores.

The better-than-expected results proved Nike’s ability to operate in a volatile environment, CEO John Donahoe said in a press release. “Marketplace demand continues to significantly exceed available inventory supply,” he added.

Given its global reach, Nike is serving as somewhat of a bellwether of how other retailers are managing challenges such as elevated oil prices, inflation, crippled supply chains and global unrest driven by Russia’s invasion of Ukraine.

Nike’s China business is also on watch. A boycott among Chinese consumers toward Western brands caused Nike’s sales to take a hit early last year, and it’s still in recovery mode. Nike has prioritized North America, its biggest market, over China during the pandemic when supplies have been tight. Nike said sales in North America climbed 9%. Sales in Greater China, the company’s third-biggest market behind its Europe, Middle East and Africa segment, fell 5% from the prior year.

On Monday, investors saw bright spots in spite of uncertainty, sending Nike shares up more than 6% in after-hours trading.

Here’s how Nike did in its fiscal third quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

• Earnings per share: 87 cents vs. 71 cents expected
• Revenue: $10.87 billion vs. $10.59 billion expected

Nike reported net income for the three-month period ended Feb. 28 of $1.4 billion, or 87 cents per share, compared with $1.45 billion, or 90 cents a share, a year earlier. That topped profit estimates for 71 cents a share, according to Refinitiv data.

Sales rose 5% to $10.87 billion from $10.36 billion a year earlier, beating analysts’ expectations for $10.59 billion.

Chief Financial Officer Matthew Friend told analysts on a post-earnings call that Nike’s revenue growth would have been even stronger over the holiday period had Nike had enough merchandise on hand to meet shopper demand. All of its factories in Vietnam are now operational, he said, following pandemic-driven shutdowns that stalled manufacturing.

Transportation times, however, remain elevated, particularly in North America. Friend said that Nike has moved up its buying timelines in order to have enough products on shelves for later this fall.

As of Feb. 28, Nike said inventories on its balance sheet totaled $7.7 billion, up 15% from the prior-year period, in part due to ongoing supply chain disruptions that have elongated transit times, the company said. The bloated inventory levels were partially offset by robust consumer demand, it said.

Nike’s gross margins increased slightly to 46.6% from 45.6% the prior year, thanks to more full-price selling.

Nike has increasingly shifted its business away from wholesalers and instead to selling more goods directly to consumers. Foot Locker, for example, recently said it would lose a percentage of Nike merchandise in the coming years. In turn, Nike has been investing heavily in its website and flagship stores to win sales.

Wholesale revenue in the third quarter fell 1%, while Nike’s store sales rose 14% year over year, as shopper traffic “normalized,” the company said.

Friend said Monday that, at this point, Nike has finished communicating the “big account pivots” to all of its wholesale partners.

Nike’s digital sales in the latest quarter rose 19% from the prior year, fueled by 33% growth in North America. Donahoe told analysts on the earnings call that Nike will continue to grow its presence in the so-called digital metaverse, through its tie-up with Roblox as well as its acquisition of the virtual sneaker marker RTFKT.

As of Monday’s market close, Nike shares are down 22% this year.

Find the full earnings press release from Nike here.

This story is developing. Please check back for updates.