Updated at 7:36 AM EST
Nike (NKE) – Get Free Report shares fell sharply in early Friday trading after the sportswear giant issued a muted full-year revenue outlook and cost-cutting plan that offset a solid fiscal-second-quarter earnings report.
Nike said for the three months ended in November came in at $1.03 a share, up 21% from the year-earlier period and firmly ahead of the Wall Street consensus forecast of an 85-cent profit.
Group revenue, however, rose only 1% from last year earlier to $13.4 billion, just shy of analysts’ estimates of a $13.43 billion tally.
China revenue was also light of forecasts, rising 8% to $1.86 billion, while North America revenue was down 3.5% to $5.63 billion.
Gross margin improved modestly, widening 40 basis points (0.4 percentage point) from the prior quarter and 1.7 percentage points from a year earlier to 44.6%, thanks to fewer markdowns and cheaper shipping costs.
Nike seeks to cut $2 billion of costs
Looking into the second half of its financial year, Nike sees revenue growing by a similar amount compared with its autumn forecast of ‘mid-single-digit-percent’ gains, thanks in part to weakness in China and “increased macro headwinds.”
As a result, Nike said, it was looking to cut another $2 billion in costs over the next three years, with a focus on supply-chain efficiency, more automation and mid-management job cuts.
“Last quarter, as I provided guidance, I highlighted a number of risks in our operating environment, including the effects of a stronger U.S. dollar on foreign-currency translation, consumer demand over the holiday season, and our second-half wholesale order books,” chief financial officer Matt Friend told investors on a conference call late Thursday.
“Looking forward, the impact of these risks is becoming clearer, and as a result, we are adjusting our full-year financial outlook,” he added. “As we move forward, our focus is building a faster, more efficient Nike and embracing the opportunities in front of us to accelerate sustainable and more profitable growth.”
Nike shares were marked 12.8% lower in premarket trading to indicate an opening bell price of $106.90 each.
Foot Locker (FL) – Get Free Report, which relies heavily on Nike for its retail sales, was marked 7.12% lower at $30 each while German sportswear rival Adidas (ADDYY) – Get Free Report slumped 6% in Frankfurt.
“Nike posted slightly softer than expected top-line results amid a difficult macro, with gross margin expansion and timing shifts in expenses led to a solid earnings beat,” said KeyBanc Capital Markets analyst Ashley Owens. She carries a sector weight rating on the stock.
“We are encouraged by momentum in (Asia and Latin America) but a strong second-half recovery in China looks to be out of focus due to increasing macro headwinds, and helped drive a downward revision to guidance, and we think reduced guidance implies ongoing uncertainty in the near term,” she added.
Action Alerts PLUS offers expert portfolio guidance to help you make informed investing decisions. Sign up now.
