Nike soars on first quarter earnings, confidence in Chinese consumer regardless of 'macroeconomic outlook'

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Nike (NKE) reported fiscal first quarter results after the bell on Thursday that topped Wall Street’s estimates for gross margins and earnings per share while showing less of a slowdown than expected in the wholesale division of its business.

The retailer’s stock rallied more than 9%, extending gains throughout the company’s earnings call as executives stressed strength in the consumer and eased worries about any potential slowdown in Greater China.

“We continue to see consumer demand for our brands and for our products to be very, very strong,” Nike CFO Matthew Friend said on the company’s earnings call. “The consumer is proving to be resilient.

Here’s how Nike’s results stacked up against Wall Street analyst expectations, according to Bloomberg consensus estimates:

Revenue: $12.94 billion vs. $12.99 billion (est.) and $12.69 billion (same period year prior)

Adj. earnings per share (EPS): $0.94 vs. $0.75 (est.) and $0.93 (same period year prior)

Gross margin estimate: 44.2% vs. 43.7% (est.) and 44.3% (same period year prior)

Nike’s inventories fell in the quarter to $8.7 billion down 10% compared to the year prior. Analysts had anticipated inventories of $8.84 billion. The metric has been closely tracked since an inventory glut plagued the retailer throughout 2022. Meanwhile, direct-to-consumer sales, a closely watched growth metric for the shoe giant, increased to $5.4 billion, up 6% from the same period a year ago.

Nike’s stock had stumbled into the report with shares falling 9% over the last month, and Wall Street analysts were warning of a subdued report from the athletic apparel behemoth.

Revenue in Greater China had been a key concern for investors headed into the report. The Chinese economy has produced slower economic growth than expected this year. Wall Street analysts fear that could also weigh on companies like Nike, who have significant exposure to China.

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In the most recent quarter, Nike saw revenue in Greater China at $1.74 billion. Analysts had expected the segment to show $1.83 billion in sales, according to Bloomberg consensus data.

“The China story is probably the biggest one here for Nike,” Forrester Research analyst Sucharita Kodali told Yahoo Finance Live on Tuesday. “The challenge is that Nike has been very dependent on the Asian market, certainly on the Chinese consumer. Not only do you have issues with the softening of the Chinese consumer and their spending ability but also just a lot of geopolitical risk that is there.”

Nike executives cooled concerns over China during the call with investors on Thursday night, though. Nike CEO John Donahoe said he’s been to China twice in the past four months and noted he feels good about the market and Nike’s position in it.

“Sport is back in China, you can just feel it,” Donahoe said. “That gives us great confidence about the future and the Chinese consumer in our segment regardless of the macroeconomic outlook there.”

Nike’s report also comes about a month after Foot Locker warned of a slowdown in its footwear business due to “price sensitive” consumers. About 64% of sales at Foot Locker (FL) are the Nike brand, according to Jefferies. If Foot Locker struggles to offload Nike inventory that could impact the shoe giant’s wholesale market, Wall Street analysts noted.

But management highlighted during the call that no retail partner represents more than a “mid-single” digit portion of Nike’s overall sales.

For the quarter, Nike reported wholesale revenues growth that came in flat compared to the same period a year prior. The Street had been expecting a decline of 4% from the same period a year prior.