Nike reported late Thursday better-than-expected fiscal second-quarter earnings while revenue met expectations. The Dow Jones athletic apparel icon, seeing a "softer" sales outlook, is looking for ways to deliver up to $2 billion in cumulative cost savings over the next three years and is "taking steps to streamline the organization." Nike stock plunged Friday.
The Dow Jones retailer reported that fiscal Q2 revenue increased nearly 1% to $13.39 billion. Nike earnings grew 21% to $1.03 a share. Ahead of earnings, analysts predicted Nike profit of 84 cents with revenue coming in at $13.39 billion. Gross margin swelled by 140 basis points to 44.6%, above consensus of 43.9%. The Dow Jones apparel and show giant cited strategic pricing, improve markdowns and lower ocean freight rates, Nike reported in its late September Q1 2024 earnings beat.
Meanwhile, Nike is looking to deliver up to $2 billion in cost savings through 2026. The Dow Jones component outlined Thursday possibly simplifying its products, increasing automation and use of technology, streamlining the organization and leveraging its scale to drive efficiencies as possible cost saving areas.
Nike is "taking steps to streamline the organization." It expects pretax restructuring charges of approximately $400 million-$450 million in the current fiscal Q3, primarily from employee severance costs.
"Nike's second-quarter financial performance was a turning point in driving more profitable growth," Chief Financial Officer Matthew Friend said in the earnings release. "As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management."
2024 Outlook
Nike executives revised full-year guidance on the Q2 earnings call Thursday evening. The Dow Jones retailer expects fiscal 2024 revenue growing approximately 1% and continues to predict gross margins to expand around 140-160 basis points.
Nike's forecast of nearly flat revenue growth is based on "increased macro headwinds," particularly in Greater China and other international markets. Nike added that digital traffic softness and a stronger U.S. dollar has "negatively impacted second half reported revenue versus 90 days ago."
"While we expect the operating environment to remain dynamic, we have been here before, and we know that moments like this are when Nike operates and executes at its best," Friend told analysts Thursday.
Dow Jones: Nike Stock
Nike stock sank 11.8% to 108.03 Friday during market action. On Thursday, NKE gained 0.9% to 122.53. Ahead of earnings, Nike stock had surged 11% in December after booking consecutive monthly gains in October and November.
NKE is working on a three-month rally, which has lifted shares to within striking distance of a high set in May, and about 7% below an official 131.31 buy point in a cup base, according to MarketSmith analysis. It's possible that Nike stock could forge a handle.
Nike stock has been consolidating since May, but has rebounded nearly 40% from its September low.
On Dec. 11, Citigroup upgraded the Dow Jones giant and hoisted its price target based on margin recovery expectations. Citi analyst Paul Lejuez upgraded Nike to buy from neutral, hoisting its price target to 135 from 100.
Citi expects gross-margin recovery beginning in Q2 2024 through 2025, driven by leaner inventory, lower promotional activity and direct-to-consumer benefits.
Meanwhile, Nike has a new innovation calendar set to roll out in 2024 ahead of the Paris Olympics as well as a solid position in China. Citi sees a favorable risk-reward opportunity at the shares' current levels.
The Dow Jones stock has an 88 Composite Rating out of a best-possible 99. Nike stock also has a 79 Relative Strength Rating and a 60 EPS Rating.
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