The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
NEW YORK, United States — After hitting a record high on Thursday, Nike Inc. is finding it harder to keep investors happy.
Despite posting quarterly results that sailed past Wall Street estimates, the shares dipped in late trading, suggesting some investors were looking for an even bigger upside surprise.
Fiscal second-quarter profit rose to 70 cents a share, Nike said, beating 58-cent average of analysts’ estimates. The company overcame headwinds from tariffs that were stiffest in the period, boosting sales by 10 percent to $10.3 billion and topping projections.
While Nike routinely beats profit estimates, its shares don’t always follow suit. The company has exceeded estimates in every quarter but one going back to mid-2012, but the stock has declined about a third of the time.
ADVERTISEMENT
Shares of Nike fell as much as 3.1 percent in extended trading before recovering to a loss of less than 1 percent. The stock touched an all-time high in regular trading Thursday, closing at $101.15.
Two possible negatives: Profit margins and inventories. Nike’s gross margin expanded to 44 percent, short of estimates of 44.1 percent. The margins have grown as the company focuses more on selling direct to its customers.
Rising Inventory
Inventory rose 15 percent to $6.2 billion, an all-time high. Nike said that jump was a result of strong global demand, as well as a higher rate of on-time deliveries from factories. The Bloomberg MODL estimate for inventory growth was 6.1 percent.
It was a busy quarter for the Beaverton, Oregon-based Nike. The company named a new chief executive officer, recently sold the surfing brand Hurley, and also drew criticism from Vice President Mike Pence over its business in China.
In October, the company shuttered its elite Oregon Project distance running team after coach Alberto Salazar was suspended for doping violations. Weeks later, a number of former Nike runners claimed they were verbally and emotionally abused by Salazar while with the Oregon Project.
Analysts remain optimistic about Nike’s digital transformation, specifically its push to sell more product directly to consumers, without a retail middleman. In 2019, Nike Direct sales grew twice as fast as its wholesale business, and now account for about 32 percent of all sales. That number should continue to grow.
Central to that growth is the proliferation of the Nike app, which is at the heart of Nike’s new stores, products and acquisitions. In its first quarter, the company expanded its app to 13 countries in Europe, the Middle East and Africa; last quarter, it launched in China.
ADVERTISEMENT
In November, Nike said it would stop selling products on Amazon, the end of a two-year pilot program. That change comes amid a broader move by Nike to limit its retail partners — opting instead to work more closely with a handful of select companies, and put more resources behind its direct-to-consumer business.
By Eben Novy-Williams; Editors: Nick Turner, Rob Golum, John J. Edwards III
Fast-growing start-ups like Hettas, Saysh and Moolah Kicks created sneakers designed specifically for active women. The sportswear giants are watching closely.
The companies agreed to cap credit-card swipe fees in one of the most significant antitrust settlements ever, following a legal fight that spanned almost two decades.
In an era of austerity on Wall Street, apparel businesses are more likely to be valued on their profits rather than sales, which usually means lower payouts for founders and investors. That is, if they can find a buyer in the first place.
The fast fashion giant occupies a shrinking middle ground between Shein and Zara. New CEO Daniel Ervér can lay out the path forward when the company reports quarterly results this week.