Nike overcomes challenges for earnings beat; stock gains in late trading

 

Nike Inc. overcame supply-chain and production challenges to produce better-than-expected profit as the holiday season approached, sending shares higher Monday. Nike
NKE,
-2.71%
reported fiscal second-quarter earnings of $1.34 billion, or 83 cents a share, up from 78 cents a share a year ago. Sales rose to $11.36 billion from $11.24 billion in the year-ago quarter.

Analysts on average expected earnings of 63 cents a share on sales of $11.25 billion, according to FactSet. Shares increased more than 3% in after-hours trading immediately following the announcement, after closing with a 2.7% decrease on a rough day for the markets. Nike has struggled with production and supply-chain issues in the second year of the COVID-19 pandemic. The company previously detailed issues with making its products in Vietnam amid a spike in the virus in that country, as well as increasing costs for delivering its goods and paying workers. “Nike’s strong results this quarter provide further proof that our strategy is working, as we execute through a dynamic environment,” Chief Executive John Donahoe said in a statement. “We are now in a much stronger competitive position today than we were 18 months ago.” Analysts have also voiced concerns about growth in China, where revenue increased 1% in the fiscal first quarter, the smallest increase in the four geographical segments that Nike discloses. Those fears were substantiated in the fiscal second quarter, as Nike said Monday that Greater China sales fell 24% year-over-year to $1.84 billion from $2.3 billion a year ago; analysts had expected $2.04 billion in China sales, according to FactSet. In its announcement, Nike said that declines in China, as well as other parts of Asia, were “largely due to lower levels of available inventory resulting from COVID-19 related factory closures.” Nike said inventories were up 7% from a year ago at $6.5 billion, a total that was “driven by elevated in-transit inventories due to extended lead times from ongoing supply chain disruptions.” The fiscal second quarter for Nike ended at the end of November, encompassing Black Friday sales but not the rest of the holiday season. Nike executives are expected to provide guidance for the third quarter in a conference call later Monday afternoon that is expected to begin at 5 p.m. Eastern. Nike stock has gained 10.6% so far this year, trailing the S&P 500 index’s
SPX,
-1.14%
23% increase in that time as well as a 15.5% gain by the Dow Jones Industrial Average
DJIA,
-1.23%,
which counts Nike as one of its 30 components. Clarification: An earlier version of this article used six-month figures instead of quarterly for Nike’s year-over-year China sales. It has been updated.

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