Why Nike Stock Is Skyrocketing Today

Nike (NYSE: NKE) stock is surging in Friday's trading following the company's recent quarterly report. The footwear and apparel specialist's share price was up 14.5% as of 10:45 a.m. ET. At the same point in the daily session, the S&P 500 index was up 0.5%.

After yesterday's market close, Nike published results for the fourth quarter of its last fiscal year -- which ended May 31. In addition to reporting sales and earnings for the period that topped Wall Street's expectations, the company also laid out forward guidance that has investors feeling bullish.

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Nike stock surges on better-than-expected Q4 results

Nike recorded earnings per share of $0.14 on sales of $11.1 billion in fiscal Q4, beating the average Wall Street analyst estimate's call for per-share earnings of $0.12 on revenue of $10.72 billion. Sales in the period were down 12% compared to the prior-year quarter, and the company's gross margin declined 440 basis points to 40.3%. As a result of the big sales decline and softer margins, earnings per share were down 86% year over year. While Nike's business continued to struggle in the period, its performance in the quarter was still significantly better than the market had anticipated -- and investors are buying into the stock today on signs that the the company's turnaround efforts are finding some traction.

What's next for Nike?

Nike also announced that it would pivot some of its manufacturing out of the Chinese market in order to lessen its exposure to new tariffs. The company is aiming to cut the share of footwear that it imports from China from 16% to a high-single-digit percentage by the end of its current fiscal year. On the other hand, the company still expects that the new import taxes could wind up increasing its costs by approximately $1 billion. Management said it is using supply chain optimization, cost reductions, and phased pricing increases to help offset the added expense.

For the current fiscal quarter, Nike is guiding for sales to decline a mid-single-digit percentage. Meanwhile, gross margins are projected to fall between 350 basis points and 425 basis points after accounting for a negative impact of roughly 100 basis points stemming from tariffs. The drag on gross margins is expected to lessen as the year progresses, and management sees the new import taxes having an adverse impact of roughly 75 basis points on the year after the company's mitigation efforts are accounted for. Even though the business is still facing some significant headwinds, the sales target for this quarter came in better than anticipated -- and the company seems to be making smart moves to navigate tariff-related challenges.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.