Nike shares slide despite strong earnings

The news shaping the markets today

A Russian missile hit a crowded shopping centre in the central Ukrainian city of Kremenchuk, killing 16 and leaving around 59 people wounded. The continued crisis sent WTI crude oil prices higher this morning.

Investors remained cautious ahead of the European Central Bank’s annual forum in Sintra, Portugal, exerting pressure on the EUR/USD forex pair.

US pending home sales grew 0.7% in May, representing the first rise in seven months. However, the Dow Jones index fell 0.2% on Monday after a rally on Friday.

Mexico reported a trade deficit of $2.2 billion in May. Exports climbed 22.4% from a year ago to $50.01 billion, while imports rose 29.1% to $52.22 billion. The MXN/USD pair declined slightly in forex trading this morning.

Hong Kong’s trade deficit widened to HK$36.7 billion in May, from HK$25,5 billion in the year-earlier month. Despite imports rising 1.3% year-over-year to HK$424.8 billion, the HKD/USD forex pair traded flat.

What’s happening: Shares of Nike fell in extended trading on Monday, despite the company reporting better-than-expected results for its fourth quarter.

What happened: The world’s largest sportswear company benefited from high demand for its athleisurewear and sneakers in Europe.

However, Nike reported a decline in sales in a key region and issued a weak forecast for one of its major metrics.

How were the results: The Beaverton, Oregon-based company reported a slight decline in sales for the quarter ended May 31, but the figure still topped expectations.

• Revenue fell 1% year-over-year to $12.2 billion, but exceeded the consensus estimate of $12.07 billion.
• Net income declined to $1.44 billion, or 90 cents per share, from $1.51 billion, or.93 cents per share, in the year-ago quarter. The figure came in higher than the market views of 83 cents per share.

Why it matters: Although inflation has been accelerating around the world, cash rich customers continued to shop for higher-priced products, providing support to Nike’s overall results.

Sales of Nike Direct grew 7% year-over-year to $4.8 billion in the quarter, while wholesale sales reached $6.8 billion, down 7%. Sales at the Converse division slipped 1% to $593 million.

Sales in North America grew 5%, in the EMEA region by 25% and in the APLA region by 43%. However, sales in the Greater China region contracted 20% and missed Street expectations, with covid-19 shutdowns resulting in store and factory closures in the country.

Same store sales at Nike-owned stores fell by 2% in the quarter.

The board authorised a new $18 billion share buyback over the next four years. The company repurchased shares worth $4 billion during fiscal 2022.

For the full year, management projected gross margins to be flat to down 50 basis points and revenues to grow by a percentage in the low double digits.

How shares responded: Nike’s shares fell 2.7% to $107.50 in after-hours trading, following a 2.1% decline during the regular session on Monday. The stock has lost around 33% year to date.

What to watch: Investors will keep an eye on the ongoing supply-related issues, as the company’s inventories have grown by 23% to $8.4 billion with products still in transit due to supply bottlenecks.

The markets today

Gold will be in focus today after closing lower on Monday

Context: Gold prices settled lower on Monday, despite gains earlier in the session, with some Western nations looking to officially ban imports of the yellow metal from Russia.

Details: Four of the G7 nations are planning to ban imports of Russia’s gold to tighten sanctions in response to the attack on Ukraine.

Several major central banks have been raising interest rates in a bid to control inflation. The US Federal Reserve also indicated further rate hikes, despite a decline in the University of Michigan’s long-term inflation expectations to 3.1%.

Although gold is typically considered a hedge against inflation, the higher interest rates support currencies and increase the opportunity cost of holding the yellow metal. The rise in the US dollar also exerted pressure on gold. The US dollar index, which measures the greenback’s performance versus a basket of major rivals, climbed in early trading on Monday and hovered close to 104.

August gold fell $5.50, or 0.3%, to close at $1,824.80 an ounce on Monday, after hitting an intraday high of $1,842.80.

Silver futures for July delivery gained 4 cents, or 0.2%, to settle at $21.168 per ounce. Copper for July delivery gained 0.6%, to $3.7625 per pound, after a 6.8% decline last week, which was the biggest weekly percentage loss since June 2021. Platinum futures for July delivery rose around 0.1% to $904.10 per ounce, while palladium for September delivery gained 2.6% to $1,858.90 per ounce.

What to watch: Traders will monitor speeches from Federal Reserve officials, inflation data and the ongoing Russia-Ukraine war.

Other Markets: European trading indices closed mostly higher on Monday, with the FTSE 100, DAX 40 and STOXX Europe 600 up by 0.69%, 0.52% and 0.52%, respectively, and the CAC 40 down by 0.43%.

Support & resistances for today

Market snapshot

What else to watch today

Germany’s GfK consumer climate indicator, France’s consumer confidence, Italy’s industrial sales, South Africa’s FNB/BER consumer confidence index, Mexico’s unemployment rate, US goods trade balance, wholesale inventories, Redbook index, S&P CoreLogic Case-Shiller 20-city home price index, FHFA house price index, CB consumer confidence, Richmond Fed composite manufacturing index, Dallas Fed services index, and API crude oil stocks, Saudi Arabia’s bank lending growth and money supply M3, Brazil’s value of loans, Argentina’s current account, ECB Forum on central banking, G7 summit as well as NATO summit.