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Nike shares slide despite FQ2 earnings beat

 

Tuesday, December 26, 2023

Today’s headlines

What’s happening: Shares of Nike fell sharply on Friday, after the company released its quarterly results.

What happened: The sportswear giant reported better-than-expected earnings for its fiscal second quarter.

However, Nike posted downbeat quarterly sales and projected lower sales for the full year, while announcing a cost-cutting plan.

How were the results: The Beaverton, Oregon-based company reported low growth in sales for the three months ended November 30.

  • Revenues grew by 0.6% year-over-year to $13.39 billion, missing the consensus estimates of $13.43 billion.
  • Earnings rose to $1.03 per share, from 85 cents per share in the year-ago period, surpassing Wall Street expectations of 85 cents per share.

Why it matters: Nike has been witnessing weakness in its wholesale business with retailers cutting back on orders. Concerns over bumpy a recovery in China have also impacted Nike’s sales.

Nike’s wholesale revenues declined 2% to $7.1 billion in the second quarter. The company’s sales in Greater China grew by 4%, representing a slowdown from 5% in the prior quarter.

Nike’s gross margins widened 170 basis points year-over-year to 44.6% due to fewer markdowns and a decline in ocean freight rates. However, changes in forex rates and higher input costs due to inflation limited the overall growth.

The company said it is assessing opportunities to deliver cumulative cost savings worth up to $2 billion over \the next three years, and projects incurring $400 million to $450 million in restructuring charges during the current quarter.

Management lowered their revenue growth guidance for the full year to around 1%, from their previous outlook of mid-single-digit percentage.

How shares responded: Nike’s shares tanked 11.8% to close at $108.04 on Friday, following the release of quarterly results. The stock has lost around 12% year to date.

What to watch: Investors will continue monitoring the economic situation in China, amid concerns of a pullback in consumer spending. Markets will also watch inflation and its impact on spending ahead.

The markets today

The British pound will be in focus today after edging higher on Friday

Context: The GBP/USD forex pair rose slightly on Friday as investors assessed economic data and evaluated the Bank of England’s monetary policy outlook.

Details: Data released on Friday showed a contraction in the UK economy, although retail sales for November topped market estimates.

The British economy contracted by 0.1% in the third quarter, versus the initial estimates of a flat reading. Retail sales rose 1.3% in November, ahead of market expectations of 0.4%.

UK’s current account deficit narrowed to £17.2 billion during the third quarter, from £24.0 billion in the prior period. However, the figure was worse than \market estimates of a £15.0 billion gap.

The CPI data released recently showed inflation easing to 3.9%, compared to estimates of 4.4%, while the core inflation rate slowed to 5.1%. However, inflation in the region is still higher than the Bank of England’s target of 2% and the highest among G7 (Group of Seven) nations.

Some weakness in the US dollar lent support to the sterling on Friday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.1% to 101.71 on Friday.

The GBP/USD forex pair rose around 0.1% to 1.2698 on Friday. London’s FTSE 100 gained 0.04% to close at 7,697.51, remaining close to the three-month high recorded earlier last week. The more domestically focussed FTSE 250 index rose by 0.31% to settle at 19,630.95.

What to watch: The Bank of England’s monetary policy for the next year will remain in focus, with traders expecting interest rates to be reduced by as much as 143 basis points in 2024.

With no major economic reports scheduled for today, investors will focus on data from the US to provide some direction to the GBP/USD forex pair.

Other Markets: US trading indices closed mixed on Friday, with the S&P 500 and Nasdaq 100 up by 0.17% and 0.12%, respectively, and the Dow Jones index down by 0.05%.

The news shaping the markets

Russia claimed that its military forces had gained full control of Maryinka, a town in eastern Ukraine’s Donetsk region. The news sent the RUB/USD forex pair higher this morning.


Japan’s unemployment rate remained unchanged at 2.5% in November, in-line with market estimates, which lent support to the JPY/USD forex pair.


Taiwan’s retail sales grew by 7.3% year-over-year in November. This represented an acceleration from the 5.1% growth in October and sent the TWD/USD pair higher in forex trading this morning.


Colombia’s industrial confidence indicator fell to -7.1 in November, from 3.7 in the prior month, exerting pressure on the COP/USD forex pair.


Canada’s wholesale sales increased 0.8% in November, after a 0.5% decline in October, which sent the CAD/USD pair higher in forex trading this morning.

What else to watch today

Saudi Arabia’s balance of trade, Turkey’s manufacturing confidence index and capacity utilization, Spain’s producer prices change, US Chicago Fed national activity index, S&P CoreLogic Case-Shiller 20-city home price index, FHFA house price index and Dallas Fed manufacturing index, as well as Central Bank of Brazil’s focus market readout.


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