Nike Earnings Show What H2 Should Look Like for Manufacturers, Retailers
For those overly optimistic about the US economic prospects for H2, I suggest revisiting Nike's (NYSE:NKE) fiscal Q4 earnings from last Thursday.
Not that the world’s largest athletic apparel company had a terrible quarter. In fact, it slightly missed EPS estimates by 0.20% but exceeded revenue estimates by 1.69% — driven by gains in its growing direct-to-consumer division. This led some analysts to have a bullish outlook on the sporting-apparel company, despite a 2.35% drop in share price after the earnings report.
However, Nike’s Q4 '23 earnings report makes it evident that the US economy is facing significant headwinds, which contrasts with the positive GDP figures released on that same Thursday morning.
With increasing inventories, rising expenses related to product inputs, freight, and logistics, augmented markdowns, and persistent adverse fluctuations in net foreign currency exchange rates, margins are shrinking both on the input and output sides.
Considering that most factors impacting Nike’s margins are external in nature, it would be surprising if similar issues did not affect upcoming earnings from retailers and manufacturers.
Given that consumer spending accounts for 68.4% of the US GDP, a broader margin compression in such industries could have a substantial snowball effect on the economy, potentially jumpstarting the long-awaited economic slowdown.
Nike’s CEO John Donahoe said on the company’s post-earnings call that the “right focus and attention for Nike is to focus on recovering a higher level of full price growth in the fiscal year 2024, profitable growth” — thus, implying further pain is expected in 2023.
Unsurprisingly, InvestingPro expects Nike’s earnings to take a nearly 40% dive in its
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