Shares for Nike Inc. got a lift in after-market trading on Tuesday after the Swoosh reported better-than-expected results for the second quarter.
The athletic giant reported Q2 revenues of $13.3 billion, up 17% from the same time last year and ahead of expectations from analysts surveyed by Yahoo. Net income was $1.3 billion, flat compared to the prior year. Diluted earnings per share were $0.85, up 2% over the same time last year and also ahead of analysts’ expectations for the quarter.
Nike Direct sales were up 16% to $5.4 billion. Nike brand digital sales were up 25% and wholesale revenues grew 19% in the quarter.
Nike CEO and president John Donahoe said in a release that the better-than-expected results were due to the company’s connection with consumers, digital leadership and brand strength.
However, like other retailers, Nike has been impacted by inflation-stricken consumers and rapidly shifting tastes in the marketplace, which has caused an inventory buildup, especially in apparel. The Beaverton, Ore.-based company said in its earnings release that its gross margin was impacted from increased markdowns to help liquidate inventory, especially in North America, as well as foreign exchange headwinds and higher costs for freight and logistics. Overall, gross margin dropped 300 basis points to 42.9% and inventories were still high in Q2 at $9.3 billion, up 43% compared to last year.
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Still, Nike executives said they were optimistic that their measures to clear inventory were making progress.
“We believe the inventory peak is behind us,” Donahoe said in a call with analysts on Tuesday.
Analysts were cautious about Nike’s expected performance for Q2 but said that growth and improvement is likely in the long run, especially as the company enters a holiday season in which it can benefit from the absence of Yeezy products in the marketplace this year.
“We expect Nike likely takes advantage of potentially stronger-than-expected North American sportswear demand to clear through excess apparel inventories,” Morgan Stanley analysts wrote in a note prior to the earnings report.
