NIKE Q3 Earnings Beat Estimates, Digital Revenues Down 15% Y/Y

NIKE Inc. NKE reported third-quarter fiscal 2025 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. However, revenues and earnings per share (EPS) fell year over year. The company’s EPS of 54 cents declined 30% from the year-ago level. However, the figure beat the Zacks Consensus Estimate of 28 cents.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.Revenues of the Swoosh brand owner declined 9% year over year to $11.27 billion but surpassed the Zacks Consensus Estimate of $11.03 billion. On a currency-neutral basis, revenues were down 7% year over year. Sales were affected by weak traffic, which fell double digits, and retail sales lagged the company’s expectations. Although the macro landscape has been challenging, sport is growing in China.NIKE, Inc. Price, Consensus and EPS Surprise NIKE, Inc. price-consensus-eps-surprise-chart | NIKE, Inc. QuoteRevenues at NIKE Direct were down 12% on a reported basis and 10% on a currency-neutral basis to $4.7 billion. The decline resulted from a 15% drop in NIKE Brand Digital and a 2% fall in NIKE-owned stores. Also, wholesale revenues declined 7% year over year on a reported basis and 4% on a currency-neutral basis to $6.2 billion.NIKE’s shares dipped 5.2% in the after-hours trading session on Thursday. This might be owing to the soft outlook for the fiscal fourth quarter. NKE’s outlook includes the expected impacts of the recently implemented tariffs on imports from China and Mexico. The company’s shares have lost 13.3% in the past three months compared with the industry’s 10% decline.NKE’s Operating Segments Synopsis for Q3The NIKE Brand revenues of $10.9 billion declined 9% year over year on a reported basis and 6% on a currency-neutral basis. Results were affected by decreases in all geographies.We estimated total NIKE Brand revenues to decrease 10.1% year over year to $10.7 billion due to a 9.7% decline in Direct-to-Consumer and a 10.6% fall in the Wholesale business.Within the NIKE Brand, revenues in North America declined 4% year over year to $4.9 billion. Sales at NIKE Direct were down 10% in the region, including a 12% decrease at Nike Digital and a 6% fall at NIKE Stores. Wholesale sales rose 3% year over year in North America, led by favorable shipment timing and higher shipments to the value partners.In EMEA, the company’s revenues declined 10% year over year on a reported basis and 6% on a currency-neutral basis to $2.8 billion. The Wholesale business revenues fell 3% year over year. NIKE Direct revenues for the segment dipped 12%, with a 25% decrease at NIKE Digital, offset by 9% growth in NIKE Stores.In Greater China, revenues dropped 17% year over year on a reported basis and 15% on a currency-neutral basis to $1.7 billion. NIKE Direct fell 11%. NIKE Digital revenues dropped 20% year over year and NIKE stores decreased 6%. Wholesale revenues for the region declined 18% year over year.In APLA, revenues fell 11% year over year on a reported basis and 4% on a currency-neutral basis to $1.5 billion. NIKE Direct dipped 4%, due to an 8% decline in NIKE Digital, negated by a 1% rise in NIKE stores. Wholesale revenues declined 4% in the region.Revenues at the Converse brand dipped 18% on a reported basis and 16% on a currency-neutral basis to $405 million. The decline was due to softness across all territories.A Look at NIKE’s Costs & MarginsNIKE’s gross profit declined 16% year over year to $4.7 billion, while the gross margin contracted 330 basis points (bps) to 41.5%. The gross margin decline was caused by increased discounts, higher inventory obsolescence reserves, elevated product costs and change in channel mix, somewhat offset by restructuring charges in the year-ago period. We anticipated the gross margin to decline 300 bps to 41.8%.Selling and administrative expenses fell 8% to $3.9 billion. As a percentage of sales, SG&A expenses increased 50 bps year over year to 34.5%. The rise in SG&A expenses rate was led by higher demand creation expenses, offset by reduced operating overhead expenses. Our model predicted SG&A expenses of $4.1 billion, indicating a drop of 2.6% year over year.Demand creation expenses increased 8% year over year to $1.1 billion, led by higher brand marketing expenses. Operating overhead expenses were down 13% year over year to $2.8 billion on reduced wage-related expenses and restructuring charges of $340 million in the year-ago period.Our model predicted demand creation expenses of $1.1 billion, indicating a year-over-year rise of 7.4%. Operating overhead expenses were anticipated to decline 5.7% year over year to $3 billion.NKE’s Balance Sheet & Shareholder-Friendly MovesNIKE ended the quarter with cash and cash equivalents of $8.6 billion, down nearly 4% year over year. Short-term investments totaled $1.8 billion, up 11% year over year. As of Feb. 28, 2025, the company had a long-term debt (excluding current maturities) of $8 billion and shareholders’ equity of $14 billion.As of Feb. 28, inventories totaled $7.5 billion, down 2% from the previous year, as an increase in units was offset by shifts in product mix.In the fiscal third quarter, the Zacks Rank #3 (Hold) company returned $1.1 billion to shareholders, including $499 million in share repurchases and $594 million in dividends. As of Feb. 28, NIKE repurchased 119.3 million shares for $11.8 billion as part of its four-year $18-billion share repurchase program approved in June 2022.NKE’s Q4 OutlookMoving ahead, management believes that the fourth quarter will show the highest impact of the company’s ‘Win Now’ efforts and as a result, the headwinds to revenues and the gross margin will start moderating. NKE is navigating through various external factors creating uncertainty in the operating environment, consisting of geopolitical dynamics, tariffs, fluctuations in foreign exchange rates and tax regulations. Also, the impact of volatility and other macro factors on consumer confidence remains a concern.It projects Q4 revenues to decline in the mid-teens band, albeit at the low end. This is owing to adverse shipment timing in North America and two points of impacts from foreign exchange headwinds. The Q4 gross margin is likely to decrease nearly 400-500 bps, comprising the restructuring charges in the year-ago period. Management forecasts SG&A dollars to be up low to mid-single digits, with restructuring charges in the year-earlier period. It has been strictly managing expenses while increasing investments to boost the ‘Win Now’ priorities, particularly demand creation. The company predicts other income and expenses, including net interest income, between $45 million and $55 million for the fourth quarter. For 2025, management expects the tax rate to be in the mid-teens range.Key Consumer Discretionary PicksWe have highlighted three better-ranked stocks, namely Duluth Holdings DLTH, Gildan Activewear GIL and Royal Caribbean RCL.Duluth Holdings, a casual wear, workwear and accessories dealer, currently carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Duluth Holdings has a trailing four-quarter earnings surprise of 37.2%, on average. The Zacks Consensus Estimate for DLTH’s current financial-year EPS indicates growth of 5.6% from the year-ago figure.Gildan Activewear, a manufacturer of premium quality branded basic activewear, carries a Zacks Rank of 2 at present. GIL has a trailing four-quarter earnings surprise of 5.3%, on average. The consensus estimate for Gildan Activewear’s 2025 sales and EPS indicates an increase of 4.4% and 16%, respectively, from the year-ago levels.Royal Caribbean, a cruise company, carries a Zacks Rank of 2 at present. RCL has a trailing four-quarter earnings surprise of 18.5%, on average.The Zacks Consensus Estimate for RCL’s 2025 sales and EPS indicates an increase of 9.1% and 26.3%, respectively, from the year-ago levels.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 256 positions with double- and triple-digit gains in 2024 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report NIKE, Inc. (NKE): Free Stock Analysis Report Royal Caribbean Cruises Ltd. (RCL): Free Stock Analysis Report Gildan Activewear, Inc. (GIL): Free Stock Analysis Report Duluth Holdings Inc. (DLTH): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks