The Impact of Nike’s Fiscal Third-Quarter Earnings Report

Key Takeaways

• Nike is set to report its fiscal third-quarter earnings of 2024 after the bell Thursday.
• Analysts expect Nike’s revenue and income to fall from the previous quarter and year-ago period amid weakened demand.
• In the prior quarter, the athletic apparel retailer lowered its outlook for the full year, citing macroeconomic headwinds.
• The company also warned it would likely have $400 million to $450 million in restructuring charges primarily due to severance costs from layoffs, which would largely be posted in the third quarter.
• In February, the company reportedly said it would lay off about 2% of its workforce or more than 1,600 workers as it cuts costs.
• Nike announced plans in December to cut an estimated $2 billion in costs over the next three years.

Nike (NKE) is set to report its fiscal third-quarter earnings of 2024 after the bell Thursday, with analysts expecting revenue and income could fall from the previous quarter and year-ago period amid weakened demand. Analyst estimates compiled by Visible Alpha project the apparel giant to report $12.28 billion in revenue, net income of $1.11 billion, and earnings per share (EPS) of 73 cents, all of which would represent a decline from what Nike reported a year earlier. In the year-ago period, Nike posted $12.39 billion in revenue and a profit of $1.24 billion or 79 cents per share. Thursday’s earnings report will be the first since Nike announced plans in December to cut an estimated $2 billion in costs over the next three years, and investors will likely be watching to see what progress Nike has made in doing so. Nike said in the prior quarter that it was lowering its guidance for the full fiscal year, citing “increased macroeconomic headwinds” in several regions including Europe, the Middle East, and Africa (EMEA), as well as Greater China.

Key Metric: Gross Margin

For the first earnings report since announcing its $2 billion cost-cutting effort, a key metric to watch will be Nike’s gross margin, as it could offer an idea of what progress the company is making in reducing costs and becoming more profitable. Analysts project a gross margin for the third quarter of about 45.14%, an increase from the 43.35% Nike posted in the year-ago period, as well as the 44.6% margin the company reported in the second quarter. Earlier this week, Bank of America analysts dropped their price target for Nike to $120 from $125, noting that the company needs to improve its profitability in China, though they said the Summer Olympics in Paris could help boost Nike’s sales later this year. Wedbush analysts lowered their price target to $115 from $131 Monday, and said that “NKE has clearly been off their game recently.” “Given last quarter’s guidance cut and a much easier sales compare in fiscal Q4, we don’t really see much downside risk to management’s current outlook, but we don’t see a beat-and-raise scenario either,” they said.

Business Spotlight: Cost-Cutting Efforts

As Nike works to bring down costs, the company reportedly announced in February it would lay off about 2% of its workforce or over 1,600 workers by the end of the fiscal fourth quarter. In December, Nike said it would also look to cut costs through “simplifying our product assortment, increasing automation and use of technology, streamlining our organization, and leveraging our scale to drive greater efficiency.” The company warned it would likely have $400 million to $450 million in restructuring charges primarily due to severance costs from layoffs, which would largely be posted in the third quarter. Nike shares were down nearly 6% year to date as of Wednesday’s close, and have lost over one-fifth of their value in the past 12 months.

In conclusion, Nike’s fiscal third-quarter earnings report will provide valuable insights into how the company is navigating challenges such as weakened demand and macroeconomic headwinds. Investors will be closely watching key metrics like revenue, net income, and gross margin to assess Nike’s financial performance and cost-cutting efforts. The outcome of this earnings report could have a significant impact on Nike’s stock price and future strategic decisions.

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