Nike earnings miss estimates, stock falls

The sportswear brand worked down its excess inventory, but profitability missed estimates because of markdowns and high freight and material costs, and reported quarterly sales that beat Wall Street expectations.

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In the quarter ending February 28th, global revenue increased by 14% to $12.4 billion. That was above analysts' average estimate of $11.5 billion. The gross margin was 43.3%, which was less than the 43.7% estimate.

Chief Executive Officer John Donahoe and his team have made progress in dealing with the glut that has forced the company to discount merchandise, hurting profit margins. The company reported a 43% jump in the previous quarter, and inventories rose by 16% from the year prior to that.

The company blamed higher markdowns to liquidate inventory as a negative for the gross margin, as well as higher costs for materials and freight. Nike sees its gross margin fall 2.5 percentage points in the current fiscal year, compared to its previous outlook for a decline of 2 to 2.5 percentage points.

In a call with investors, Chief Financial Officer Matt Friend said the company expects pressures on profitability to be lessened in the next fiscal year, which begins around June.

The pressure on consumer confidence is closely monitored by the company, Friend said. Nike sees revenue growing by a high-single digit percentage this fiscal year, up from its previous guidance of mid-single digit expansion.

Nike shares fell by 1.7% in premarket trading at 8: 20 a.m. Wednesday in New York. The stock had gone up about 7% this year until Tuesday s close. European peers Adidas AG and Puma SE were trading lower.

Weakness in China persisted, though Nike's troubles there may lessen as the nation s reopening reaches full swing. Revenue fell almost 8% in all regions except for greater China.

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