Nike stock slides on downbeat earnings forecast
Yahoo Finance Live anchors discuss fourth-quarter earnings for Nike.
Video Transcript
BRAD SMITH: Let's talk about Nike though. You teased this a moment ago, Nike shares, they are currently trading lower here in the premarket by about 2.6%. This after the company reported fourth-quarter earnings warning that an increase in transportation costs and a strong US dollar could put pressure on margins over the coming financial year.
On that FX and foreign exchange front they did mention in this most recent quarter that their cautious approach here-- or excuse me their expectations for the full year, they're expecting it to grow low double-digits on a currency-neutral basis but that impact because of the foreign exchange headwinds, approximately 400 basis point impact it's what they're looking for there.
BRIAN SOZZI: I think I'm going to run out of time here. I'm not going to be able to get to everything I want to say. So first, if you're waking up this morning wondering why Nike is the top-trending ticker on Yahoo Finance and the stock is down premarket; gross margins down year over year, missed consensus; North American sales, missed consensus; China sales, missed consensus; operating profits in most international regions, down. Not good.
On the conference call, I-- first of all, I have to knock the team at Nike here, they spent about 20 minutes just talking about anything other than what is going wrong with the business. I know on an earnings call you're supposed to hype things up, get people excited but still, again, I come back to what we were talking about a couple of weeks ago. I would have liked to have heard more just transparency--
BRAD SMITH: Yeah.
BRIAN SOZZI: --at the top of these calls to set investors up to what might be coming in the months ahead. Next thing I didn't like, inventory up 23% year over year against 1% sales decline. And they dropped this word on the earnings call, which will be the earnings-- which will be the word to watch from retailers as report in a few weeks, promotional. They're seeing a more promotional environment as more inventories come in this market. We've heard it from Target, we've heard from others, huge red flag.
JULIE HYMAN: I--
BRIAN SOZZI: I think I got it in.
JULIE HYMAN: I think you got it. I mean, that said, about the conference call, they spent a lot of time talking about China and some of the difficulties--
BRIAN SOZZI: Yes.
BRAD SMITH: Yeah.
JULIE HYMAN: --they're having there, so it's not like they're sweeping stuff under the rug here by any means. And this is still Nike, right? The company is still seeing growth, still seeing growth on a constant currency basis, still seeing growth in a lot of its different regions, even as greater China sales fell by 20%, even as North America is pulling back. The company has always talked a lot about innovation. That's one of the things it does.
And this is what, Nike's 50th anniversary? So they talked a lot about that. There was just recently a spread in "The New York Times" talking about the cultural importance of Nike. So yes, red flags, yes, slowing, but like Nike's fine.
BRIAN SOZZI: I'm still trying to figure out though, Brad, is this a recessionary quarter from Nike? It's not there yet. Looks like they had success pushing through price increases but you still got the sense growth is slowing at this company.
BRAD SMITH: Right. And on the pricing strategy, long-term their goal is to be at 65% full-price realization there. And so there still is a discounting mechanism that is just part of the strategy at Nike. However, on the cultural annexation that a brand like Nike has as well, you've got to wonder for some of the limited run, some of the inventory even issues, aside from the limited-run inventory that they've put out there that makes its way over to StockX, that gets resold for $600, $1,000 in some cases.
BRIAN SOZZI: Our Brian Cheung, always a buyer of those shoes.
BRAD SMITH: Exactly. And so he is out-bidding all of us on either eBay and beating us on the sneakers app at the same time. And so all of that considered, you've got to wonder if there is some of that cultural deterioration that could take place as a result of people having poor experiences trying to purchase the product. And then having to pay 3, 4x for that same product that somebody else was able to get because they have a bot on sneakers or something.
JULIE HYMAN: Well, and in the past, you know, you would wonder, OK, who's taking that share? Now it's not someone else taking that share, it's something else taking--
BRAD SMITH: Yeah.
JULIE HYMAN: --that share. In other words, if I spend a lot of my free time if it's a leisure activity of mine to buy sneakers in the way that you're describing, and it's now becoming not fun anymore. Well, I'm going to go on a trip, right? I'm going to go out to eat.
BRAD SMITH: Right.
JULIE HYMAN: I'm Going to spend-- I'm going to allocate my money in a different way. Instead of on a different sneaker maybe. Maybe, I don't know.
BRIAN SOZZI: I just want Nike--
JULIE HYMAN: What do you have on?
BRIAN SOZZI: --I want Nike to bring back tongues.
BRAD SMITH: I do have-- I actually--
BRIAN SOZZI: You have tongues in your shoes? I've gotten--
BRAD SMITH: Tongues?
BRIAN SOZZI: --three pairs of Nike sneakers--
BRAD SMITH: Yes?
BRIAN SOZZI: --over the past, let's say six months, none of them have tongues anymore.
JULIE HYMAN: No, they have a tongue but it's integrated.
BRIAN SOZZI: They do?
JULIE HYMAN: It's an integrated tongue.
BRIAN SOZZI: It sounds like cost savings to me.
BRAD SMITH: I have the Adapt.
BRIAN SOZZI: I want my tongues. If I'm going to pay $150-- those are nice shoes, Brad. Those are really nice shoes. They have tongues
BRAD SMITH: These are actually golf shoes.
BRIAN SOZZI: Really?
BRAD SMITH: Yeah.
BRIAN SOZZI: They're really nice. I like the tongues.
BRAD SMITH: Jordan One call.
BRIAN SOZZI: I want tongues.
JULIE HYMAN: He likes the tongues.
BRIAN SOZZI: Nike bring back tongues, I need them.
JULIE HYMAN: Oh, there, we got the shoe cam.
BRIAN SOZZI: Yeah. Shoe cam.
JULIE HYMAN: Shoe cam happening.
BRIAN SOZZI: There we go.
JULIE HYMAN: All right, let it-- let the record reflect that Brian Sozzi--
BRIAN SOZZI: I want tongues.
JULIE HYMAN: --is pro sneaker tongue, OK.