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Investing.com– Nike Shares initially rose in extended trading after the company beat expectations for the fiscal second quarter. However, the stock reversed course and fell after disappointing guidance and updates during the earnings conference call.
Shares of Nike Inc (NYSE 🙂 fell 4% in premarket trading on Friday.
The sportswear giant posted second-quarter earnings per share (EPS) of $0.78 and revenue of $12.4 billion. Analysts surveyed by Investing.com anticipated EPS of $0.65 and revenue of $12.18 billion.
Revenue fell 8%, and Nike brand revenue fell 7% to $12 billion. Gross margin fell 100 basis points to 43.6%, driven by “increased discounts and channel mix changes,” the company said.
In China, the company’s problems continue, as sales fell 27% to $375 million.
New president and CEO Elliott Hill emphasized several key strategic priorities, including a greater emphasis on sports, faster innovation, enhancing the brand through fewer e-commerce promotions and improving partnerships with wholesale distributors.
Looking ahead, Nike has projected a low double-digit percentage drop in third-quarter revenue, missing analyst estimates for an 8% drop. The company also indicated that fourth-quarter revenue would decline further, compared to current expectations for a 6% drop.
According Raimon (NS:) James analysts, this outlook “reflects Nike’s accelerated efforts to clear excess inventory to create a stronger foundation to grow and elevate the brand, and ongoing efforts to recalibrate direct-to-wholesale product. The classic product continues to be managed at a lower level as innovation increases. above.”
“In our view, Nike remains a ‘show me’ story. Accelerating innovation and elevating the brand are the right steps, but it’s unclear if and when revenue will increase, especially given historical tailwinds ( Direct, China) that remain under pressure,” they added. .
Elsewhere, Jefferies analysts praised Hill’s vision, but noted that Nike’s past leadership missteps in product and distribution have left the company vulnerable.
“It is now clear that NKE’s enormous market share is being ‘Pac-Manled’ by competition in both the classic and performance segments,” wrote analysts led by Randal J. Konik.
“The guidance indicates serious problems, and the novelty is not guaranteed to improve the situation, as evidenced by the significant drops in digital revenue. Bottom line: just don’t buy it.”
Jefferies cut the price target on NKE shares from $85 to $75, reiterating a Hold rating.
Yasin Ebrahim contributed to this report.
