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Mayank Marwah
Mayank Marwah
Articles (804) 

Nike Posts Mixed 3rd-Quarter Results

Company’s gross margin plunged to 44.3% in the third quarter

March 25, 2020 | About:

Nike Inc. (NYSE:NKE) released its results for the third quarter of fiscal 2020 on March 24 after the market closed. The cmpany’s revenue topped expectations courtesy of growth in the digital business and robust performance in North America. However, earnings fell short of projections.

By the numbers

The company, which is known for its athletic shoes and apparel, posted earnings of 53 cents per share in the third quarter, down from 68 cents per share reported in the prior-year quarter. Revenue of $10.1 billion jumped 5% on a year-over-year basis. Analyts had predicted earnings of 59 cents per share on $9.8 billion in revenue.

During the quarter, Nike’s gross margin dropped to 44.3%. Various factors were responsible for lower gross margin, including Covid-19, lower sales mix in Greater China, changes in foreign exchnage rates and additional tariiffs in North America.

While the company’s direct-to-consumer business surged 13% in the quarter, online sales were up 36%.

“As we close Q3, NIKE’s Brand leadership and business momentum have been stronger than ever and unrivaled around the world,” Executive Vice President and CFO Andy Campion said. “Amidst the dynamics that all are facing, we are executing against an operational playbook that will expedite NIKE’s return to profitable, capital efficient growth leveraging our strong financial position, the strongest partnerships across the value chain in our industry, and our leading digital capabilities.”

Performance in North America and China

In North America, sales rose 4% in the third quarter thanks to strong footwear and apparel sales.

Although sales in Greater China were up double digits in the first two months of the third quarter, they dropped 4% for the reported quarter due to the impact of Covid-19 and subsequent quarantine measures in the third month. The company was forced to shut down 75% of its stores and reduce the number of hours of operations in others.

However, roughly 80% of its stores have been open in Greater China as of Tuesday. The company is seeing signs of recovery in the region after the initial outbreak.

Digital sales jumped more than 30% in the reported quarter as more consumers signed up to Nike’s digital application for at-home workouts.

Covid-19 global response

Nike announced on Sunday that it is closing down all its locations in the U.S., Canada, Western Europe, Australia and New-Zealand until March 27. As far as the current quarter is concerned, the company plans to shut down more stores.

Nike is also involved in making personal protective equipment such as face shields for supporting health care workers.

Guidance

Nike did not issue any guidance for the fourth quarter, but representatives said the company is slowly bouncing back in Greater China with traffic “significantly accelerating” each week.

Disclosure: I do not hold any positions in the stocks mentioned.

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About the author:

Mayank Marwah
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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