Even Recession Fears Cannot Push Athleisure Out Of Style

Upwallstreet
Thu, December 22, 2022 


Nike (NYSE: NKE) shares rose after quarterly earnings showed buoyant North America sales. Despite heavy discounting due to excessive inventory hitting profit margins and causing flat profits on higher sales, the US athleisure company topped estimates. Its European’s peers also gained from Nike's good news, with Puma (PTC: PUMSY) and adidas AG (OTC: ADDYY) both rising roughly 6 per cent in Frankfurt, while JD.com Inc. (NASDAQ: JD) jumped 8 per cent in London.

Nike did it again, despite a challenging environment

With high consumer demand that drove a strong business momentum in a dynamic environment, Nike’s management stayed focus on what it can control. Although inventories rose 43% compared to last year, they declined from the previous quarter. For the quarter that ended on November 30th, revenues rose 17 percent to $13.3 billion while profits remained flat compared to the year ago period, amounting to $1.3 billion.

Direct sales amounted to $5.4 billion, rising 16 percent for the quarter, with digital sales also rising 25 percent due to record growth in the brand’s digital membership platform.

Gross margin declined compared with the prior quarter due to higher markdowns, especially in North America with profit margins also pressured by higher marketing, logistics and freight costs.

As for China that was shaped by COVID-19 restrictions, sales did drop 3 percent but, it is still a far more gentle drop compared to prior quarter’s 16%.

The success secret

Chief Financial Officer Matthew Friend explained that the challenging market conditions were offset by strong demand, especially in North America where revenue rose 30% from last year’s comparable period. Nike’s strategy of shifting its sales directly to consumers and becoming a ‘direct-to-consumer’ brand is undoubtedly working.

New (streaming) horizons

As of December 30th, Netflix will start streaming Nike Training Club classes, taking a page from Peloton’s (NASDAQ: PTON). Nike Training Club is the company's fitness app that hosts videos of strength, yoga, and high-intensity interval training. By including Nike's speciality content, Netflix made a smart move to lure exercisers stay on their platform while doing fitness and Nike only continued expanding its already impressive global presence, something it is well known for and that many find to be one of the secrets behind its success.

Despite costs squeezing margins, Nike now sees its revenue growing for the full fiscal year. Like many other times throughout its history, Nike again showed it why it deserves its market leader title, year after year.