Nike (NYSE: NKE) stock is down more than 9% in pre-market trading on Wednesday, April 1, hovering around the lowest levels in more than a decade following a mixed earnings report.
The athletic apparel company reported fiscal third-quarter earnings per share (EPS) of $0.35 and $11.3 billion in revenue, topping Wall Street expectations of $0.29 cents and $11.23 billion, respectively.
While the results alone might appear solid, investor sentiment shifted when CFO Matthew Friend said that fiscal fourth-quarter sales are expected to decline between 2% and 4%, compared with analyst forecasts of a roughly 1.9% increase.
What’s more, gross margin decreased 130 basis points, to 40.2%, implying that each sale is generating less direct profit.
At press time, Nike shares were sitting at $48.02 in pre-hours, with comparably low prices last seen in 2015.
Why is Nike stock crashing?
Nike’s expectation that revenue in China will fall about 20% in the current quarter is among the chief investor concerns. This is hardly surprising as the Asian country remains one of the company’s most strategically important markets.
The pessimism can largely be attributed to a shift in consumer preferences in the region, which now increasingly prefers domestic athletic brands. However, Friend stated that the leadership remains confident in their ability to position Nike for long-term growth.
“We delivered third quarter results in line with our expectations, and our teams continue to execute with discipline. Win Now actions will continue to impact results over the balance of the calendar year, and we remain confident in our ability to position the Company for profitable growth long-term,” Friend said in the earnings release.
In contrast, the wholesale demand in North America is showing improvement. In fact, Nike’s wholesale revenue rose 5% year over year to $6.5 billion, largely driven by strength in the domestic market. As such, the performance could push the management to focus even more heavily on retail partners after years of prioritizing direct-to-consumer sales.
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