Sportswear giant NIKE Inc. (NYSE:NKE) announced its second-quarter fiscal 2024 results, surpassing the Consensus Estimate in earnings. The company witnessed growth in both top and bottom lines, attributed to robust retail sales through Nike Direct, backed by a strategic business approach, innovative product offerings, and digital leadership.

Earnings for Q2 fiscal 2024 reached $1.03 per share, marking a 21% increase from 85 cents reported in the corresponding quarter of the previous year. The earnings exceeded the Consensus Estimate of 84 cents.

While revenues for the Swoosh brand owner increased by 1% year over year to $13,388 million, they fell slightly short of the Consensus Estimate of $13,395 million. On a currency-neutral basis, revenues showed a 1% decline compared to the previous year.

NIKE Direct sales reported a 6% increase on a reported basis and a 4% increase on a currency-neutral basis, totaling $5.7 billion. This growth was driven by improved in-store and online traffic, with NIKE Digital experiencing a 4% increase on a reported basis and a 1% increase on a currency-neutral basis. Despite a 9% rise in NIKE stores on a currency-neutral basis, the increase was offset by a decline in wholesale revenues.

Wholesale revenues for the company were down 2% from the previous year, amounting to $7.1 billion on a reported basis and 3% on a currency-neutral basis.

Post the announcement, NIKE shares witnessed a decline of 11.7% in the after-hours trading session on December 21, 2023, following a softer-than-expected performance in the fiscal second quarter and a less optimistic revenue outlook for the second half and fiscal 2024. Despite this, the company’s shares have shown a notable 35.3% increase in the past three months, outpacing the industry’s growth of 26.9%.

Operating Segments

NIKE Brand: Revenues amounted to $12.9 billion, reflecting a 1% year-over-year increase on a reported basis and a flat performance on a currency-neutral basis. Growth in Greater China and APLA offset declines in North America and EMEA.

North America: Revenues fell 4% on a reported basis and 3% on a currency-neutral basis to $5,625 million. While the wholesale business saw a 9% dip, the NIKE Direct business reported a 3% increase.

EMEA: Revenues rose 2% on a reported basis but declined 3% on a currency-neutral basis to $3,567 million. While the Wholesale business dropped by 8%, NIKE Direct revenues grew 7% on a currency-neutral basis.

Greater China: Revenues increased by 4% on a reported basis and 8% on a currency-neutral basis to $1,863 million. Brick-and-mortar sales in the region remained strong, with NIKE Direct falling 4% on a currency-neutral basis.

APLA: Revenues rose 13% on a reported basis and 10% on a currency-neutral basis to $1,805 million. NIKE Direct advanced 15% on a currency-neutral basis.

Converse Brand: Revenues fell 11% on a reported basis and 13% on a currency-neutral basis to $519 million, primarily due to softness in North America and Europe.

Costs & Margins

Gross profit increased by 5% year over year to $5,971 million, with the gross margin expanding by 170 basis points to 44.6%. The company witnessed gains from effective pricing actions, reduced ocean freight costs, improved supply chain, and slight markdown gains.

Selling and administrative expenses increased by 1% to $4,146 million. SG&A expenses remained flat as a percentage of sales at 31%.

Demand-creation expenses increased by 1% year over year to $1,114 million due to elevated marketing expenses.

Balance Sheet & Shareholder-Friendly Moves

NIKE concluded the quarter with cash and cash equivalents of $7,919 million, reflecting a 22% increase year over year.

In Q2 fiscal 2024, the company returned $1.7 billion to shareholders through share repurchases and dividends.

Outlook

NIKE foresees challenges, including a stronger U.S. Dollar, soft consumer demand over the holiday season, and low second-half wholesale order books.

The company anticipates a slight decline in revenue growth from double-digit growth for the fiscal third quarter and low-single-digit revenue growth for the fiscal fourth quarter.

The guidance for fiscal 2024 has been adjusted, with expected revenue growth of 1%, down from the mid-single digits.

NIKE projects gross margin expansion of 160-180 bps for Q3 and 225-250 bps for Q4 of fiscal 2024.

The fiscal 2024 gross margin is expected to expand 140-160 bps on a reported basis, reflecting gains from strategic price increases, lower ocean freight rates, and supply chain efficiency.

SG&A expenses for fiscal 2024 are predicted to decline in the low-single digits, excluding restructuring charges.

NIKE expects restructuring charges of $400 million-$450 million in the second half of fiscal 2024.

The company maintains strong gross margin execution and disciplined cost management to offset soft second-half revenues and drive earnings growth.

In conclusion, despite a dip in share value following the announcement, NIKE remains optimistic about overcoming challenges and continues to focus on strategic measures for future growth.

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