Why Nike Stock Tumbled Today
Key Points
Nike's revenue edged higher in the second quarter, but profits continued to fall.
The company is making progress in its turnaround, especially in North America.
It sees revenue declining in the third quarter.
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Shares of Nike (NYSE: NKE) were heading lower today after the sportswear giant beat estimates in its fiscal second-quarter earnings report, but offered disappointing guidance, saying that revenue would decline in the third quarter after growing modestly in the first half of the fiscal year.
Nike is in the midst of a turnaround, and the guidance seemed to indicate that that will take longer than investors had hoped.
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As a result, the stock was down 9.1% as of 11:00 a.m. ET.
Image source: Nike.
Nike asks for patience
Revenue in the quarter rose 1% to $12.4 billion, which was ahead of the consensus at $12.21 billion. Wholesale revenue continued to move higher, up 8% to $7.5 billion, as a part of a strategic shift to win back key retail partners, while Nike Direct revenue was down 8% to $4.6 billion. China sales were down 17%, while North America revenue was up 9%, a sign that its turnaround efforts are paying off.
Gross margin fell 300 basis points to 40.6%, due to higher tariffs, and earnings per share declined 32% as a result to $0.53, which still topped estimates at $0.37.
CEO Elliott Hill said, "Nike is in the middle innings of our comeback. We are making progress in the areas we prioritized first and remain confident in the actions we're taking to drive the long-term growth and profitability of our brands."
What's next for Nike
Looking ahead to the third quarter, Nike said it expects revenue to fall by low single digits, or come in at roughly $11 billion, which is also a sequential step down, though that's in line with seasonality. Similarly, it sees gross margin falling from 175-225 basis points in the quarter.
There wasn't anything particularly alarming in Nike's report, but the sell-off is understandable given the continued decline in profits and the guidance. The turnaround seems to be on the right track, but the company may still be a few quarters away from returning to profit growth.
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Jeremy Bowman has positions in Nike. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.
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