Head of Equity Strategy
Summary: Nike shares are down 6% on a weaker than estimated outlook for revenue growth suggesting just flat to slightly higher revenue in constant currency terms over the next year. The outlook also comes with a cautious outlook on China which has been a negative factor in the previous quarter. Costs are still impacted from logistics and commodities used in footwear and apparel production, and disrupted supply chains are pushing inventories higher because more goods are in-transit. Overall, Nike's result shows that the consumer is hurt by inflation and in China Covid lockdowns are making it difficult for consumer companies.
Nike hit by China and cost pressures
Despite shares have come down 37% from the peak back in November lowering expectations (see chart on forward valuation), Nike’s earnings outlook disappointed investors sending its shares down 6% in the main session. FY22 Q4 (ending 31 May) revenue was down 1% from a year ago led by weakness in its Greater China segment where revenue was down 20% and North America down 5% in constant currency terms. The bright spots were EMEA and NIKE Direct (its direct e-commerce channel) showing gains of 20% and 15% in constant currency terms respectively. Nike’s inventory was $8.4bn at the end of the quarter up 23% y/y driven by elevated in-transit inventories due to extended lead times from ongoing supply chain disruptions; the company says demand remains strong relative to inventory levels and thus the elevated inventory will likely not lead to major discounts going forward.
On the earnings call Nike said that it will likely see gross margin down by up to 50 basis points over the coming fiscal year ending 31 May 2023 and currency neutral revenue growth to be flat to slightly up. Given the inflationary pressures this translates into a slowdown in volume over the coming year. Nike also sounded cautious on China indicating that more lockdowns and disruptions cannot be ruled out. Overall, the outlook from Nike is further evidence of the consumer feeling the heat from inflation and today’s worse than expected consumer confidence and expectations indices together with another ugly regional Fed manufacturing activity index (Richmond Fed) have pulled US equities sharply lower.
A new fragmented world order can render some of today's infrastructure obselete, but it also calls for massive new investments across the globe, which requires a new set of strategic and tactical investment strategies.
Steen Jakobsen,
Chief Investment Officer
As globalisation turns to fragmentation, China seems set on playing a role in the global economy, while simultaneously working towards proofing its own economic situation from external shocks and crises.
Redmond Wong,
Market Strategist
The recent bank runs and ensuing challenges are reminicent of something we've seen before. Will it end like the S&L crises of 1986 and 1995?
Chris Dembik,
Head of Macroeconomic Research
Equity markets need to recalibrate to another - fragmented - global world. What's your view on equities in this market - are they going up or down?
Peter Garnry,
Head of Equity Strategy
With every development comes new opportunites, some of which could be in India. Have you considered the country as a part of your diversification strategy?
Charu Chanana,
Market Strategist
A collar is an option strategy that allows some protection while maintaining some upside potential. What investment would you like to use a collar strategy for?
Hans Oudshoorn,
Trainer Academy
There are arguments to be made for many commodities to have upside. Which are you paying the most attention to this quarter?
Ole S. Hansen,
Head of Commodity Strategy
In a very challenging macro environment, which currencies do you think will come out on top?
John J. Hardy,
Head of FX Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
