Nike Stock Just Plummeted More Than 10%. Here's Why.
Key Points
Nike met Wall Street's sales estimate and posted better-than-expected earnings in fiscal Q3.
The company expects sales to decline between 2% and 4% in the current quarter.
Management anticipates that revenue from the company's Greater China segment will decline roughly 20% in the current quarer.
After the market closed yesterday, Nike (NYSE: NKE) published results for the third quarter of its current fiscal year -- a period which ended Feb. 28. The company actually posted earnings that topped the average Wall Street analyst estimate and sales that were in line with the consensus target.
The company reported earnings per share of $0.35 on sales of roughly $11.23 billion -- beating the average analyst forecast's call for per-share earnings of $0.28 on the same level of sales. Despite a significant earnings beat in the quarter, Nike stock is getting crushed in today's session on weaker-than-expected forward guidance. The footwear and apparel company's share price was down 15.1% as of 3 p.m. ET and had been off as much as 15.4% earlier in the day's trading.
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Nike stock slips on mixed Q3 results and soft guidance
Nike's fiscal Q3 revenue declined roughly 3% year-over-year on a currency-adjusted basis, with sales for its Nike Direct segment declining 7% and sales for Nike Digital down 9%. Wholesale revenue actually increased 1% on an annual basis, but a 5% year-over-year decline in revenue at Nike stores dampened overall sales performance. Further complicating the picture, the company's gross margin for the quarter came in at 40.2% -- down from 41.5% in the prior-year period.
While the business's fiscal Q3 results weren't stellar by any stretch of the imagination, management's forward guidance is likely having an even bigger impact on today's sell-off. Notably, Nike says that it expects fiscal Q4 sales to decline between 2% and 4% on an annual basis. Previous comments from management had indicated that performance should start to see improvements in the back half of the fiscal year, and the latest guidance for the current quarter suggests that investors could be kept waiting when it comes to improved turnaround momentum.
Crucially, Nike's team said that it expects sales in the Greater China geographic segment to be down roughly 20% year over year in fiscal Q4. While management is guiding for an overall improvement to gross margins between 25 basis points and 75 basis points in the quarter despite tariff headwinds, the bleak outlook in the Chinese market raises questions about the business's near-term performance outlook.
For years, expansion in China had been a central component of Nike's growth story -- but shifting trends in the market have created substantial headwinds for the footwear-and-apparel leader. Amid rising geopolitical tensions and other dynamics, Chinese consumers have been showing an increased preference for domestic brands. With guidance for a roughly 20% annual sales decline in the current fiscal quarter, Nike's position in the country's market is still weakening. For comparison, the company's overall Greater China segment sales declined 12% on a currency-adjusted basis last quarter.
Nike expects that sales declines in China will continue to weigh on its overall revenue performance through the next fiscal year. While management seems more optimistic about performance after that point, investors are understandably showing some signs of doubt on the heels of the company's latest updates.
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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.
