By Senad Karaahmetovic
Shares of Nike (NYSE:NKE) are trading more than 12% higher in pre-market Wednesday after the company reported better-than-expected second-quarter results despite falling margins.
Nike posted EPS of $0.85 on revenue of $13.3 billion to top the analyst estimate of $0.65 on revenue of $12.58B. Revenue soared 17% year-to-year (YoY), driven by a strong outperformance in North America (+30% YoY). Europe saw an 11% increase in sales while China revenue slipped 3% to $1.79B.
Nike also reported a 25% increase in brand digital sales amid "strong growth across all geographies and channels," the company said.
On the other hand, gross margins decreased by 300 basis points to 42.9%, but still above the 42.1% consensus.
“Our growth was broad-based and was driven by our expanding digital leadership and brand strength,” the company said in a press release.
Analysts praised Nike for delivering “strong” results and a clean quarter with many raising estimates and targets to reflect FQ2 results. Piper Sandler analysts hiked the price target by $10 to $105 per share while reaffirming a Neutral rating.
“2Q significantly beat our expectations, but macro pressures leave us prudently conservative for the 2H. Encouraging China commentary and an opportunity to lap transitory margin headwinds leave us optimistic on the opportunity in FY24, but the uncertain macro including timing of a China recovery, caution on near-term apparel trends, and challenging inventory/promotion headwinds cause us to maintain our Neutral rating,” the analysts clarified in a note.
Jefferies analysts also hiked the price target as he went to $140 from the prior $115 per share on the Buy-rated Nike stock.
“We believe NKE's 2Q performance proves the brand remains strong, margin drivers are intact (DTC/Digital) and global demand is healthy. Looking ahead, we expect inventory and China-related issues to subside, driving margin improvements. We move our estimates higher and recommend purchasing NKE shares and selling LULU shares,” the analysts said in a note.
UBS analysts reiterated a Buy rating on Nike stock and promoted it to 'Top Pick for 2023' list.
Nike stock price was down 38% year-to-date (YTD) heading into the results.