Text|U.S. Stock Research Society."Destocking" has always been a key word for Nike.
This year, there have been endless tweets about Nike's discounts, and the outlet stores that hold the event have become a new check-in mecca for the younger generation. Taking the world's largest "Nike Preferred Experience Store" newly opened by Guangzhou Wanguo Outlets in September this year as an example, the store was very popular on the opening day, with daily sales of 10.05 million yuan.
Although the continuous ** activity has brought short-term revenue growth, it has not brought Nike's inventory and net profit back on track. According to the data, at the end of fiscal year 2023, Nike's inventory was $8.5 billion, the same as the same period last year, and the net profit was $5.1 billion, down 16% year-on-year;In the first quarter of fiscal 2024, Nike's inventory was $8.7 billion, down 10% year-over-year and up 2.0% sequentially4%, net profit of $1.5 billion, down 1% year-on-year.
As a result, Nike's inventory and net profit figures have been the focus of the market. On December 22, Nike announced its financial results for the second quarter of fiscal year 2024. Judging from the latest financial report data, Nike's above-mentioned predicament seems to have taken a turn for the better.
Inventory clearance net profit increased by 19% year-on-year, what did Nike do right?The second quarter is the traditional peak season, and under the interaction of industry demand and Nike's multi-faceted initiatives, the company's destocking effect in this quarter is obvious. According to the financial report, in the second quarter of fiscal year 2024, Nike's inventory during the period was $8 billion, down 14% year-on-year and 8% quarter-on-quarter.
Among them, special holidays, improved sales channels and discounts** contributed significantly to destocking. During the Black Friday week and the long weekend of Thanksgiving, the company revealed in its earnings conference** that the number of consumers shopping at Nike's stores hit an all-time high.
In Greater China, Nike's physical store sales achieved double-digit growth during the National Day holiday, and it also outperformed the industry again during the Double 11 period, topping the Tmall sports brand sales list for nine consecutive years and winning the first place in the other seven lists.
However, the method of clearing inventory at a low price has also dragged down Nike's revenue growth. According to the financial report, Nike's revenue for the quarter was $13.4 billion, a year-on-year increase of 1%, which was lower than market expectations.
However, fortunately, Nike insists on strict cost management, so that the company still achieves high growth in gross profit margin and net profit under the premise of high quality.
Nike is looking for opportunities to achieve $2 billion in cost savings over the next three years, and said its potential savings include simplifying product assortment, increasing automation and technology use, streamlining the organization, and using scale to improve efficiency. Among them, the company revealed in its financial report that the streamlining of the organization is expected to generate about 400 million to 4A pre-tax restructuring charge of $500 million, primarily related to employee severance payments.
According to the financial report, Nike's gross profit margin in the quarter increased by 170 percentage points year-on-year to 446%；Net income increased 19% year-over-year to $1.6 billion. In this regard, Matthew Friend, executive vice president and chief financial officer of Nike, said that the company's second-quarter financial performance was a turning point in driving profit growth.
Based on the core indicator data, it can be said that Nike's financial performance in the second quarter was relatively stable. But the secondary market is not satisfied with such a seemingly "good" financial report. It is understood that on the day of the release of the earnings report, Nike's after-hours stock price exceeded 10%. As of press time, on December 25, Nike's stock price has been **14$49, a drop of 114% at 108$04 stocks, so, what are the concerns about Nike in the secondary market?
The performance outlook for the second half of the year is "softening", and Nike's new story in China is not easy to tellThe U.S. stock research community speculates that Nike's stock price** is related to the performance guidance issued by Nike. It is reported that based on its own business structure and the future development trend of the market, the company lowered its annual performance guidance in the financial report.
Geographically, Greater China continues to play an important role in growth. According to the financial report, North America achieved revenue of 56US$2.5 billion, down about 4% year-on-year;EMEA revenue was 35$6.7 billion, up 2% year-on-year;Revenue in Greater China was 18US$6.3 billion, an increase of 8% year-on-year on a constant exchange rate basis, has achieved five consecutive quarters of growth;Asia Pacific & Latin America revenue was 180.5 billion US dollars, a year-on-year increase of 13%.
It should be noted that Greater China is also the region with the highest profit margins for Nike. Since the company did not disclose relevant data in this quarter, this article uses the previously disclosed full-year financial report data for fiscal year 2023 as evidence. According to the data, although the growth of the 2023 fiscal year has slowed, the EBIT margin in Greater China is as high as 3150%, much higher than 25 in North America24%, and 26% in EMEA32% and 30 percent in Asia Pacific and Latin America04%。
Therefore, the future revenue growth performance of Greater China will greatly affect Nike's overall growth performance in the future.
However, from the perspective of growth trends, Nike's revenue growth in Greater China has slowed down. According to the data, in the third quarter and fourth quarter of fiscal year 2023, Nike's revenue in Greater China was 19$900 million, 18100 million US dollars, the year-on-year growth rate was %;In the first quarter and second quarter of fiscal 2024, Nike's revenue in Greater China was 17$3.5 billion, $18US$6.3 billion, with a year-on-year growth rate of %.
However, the current domestic sports shoes and clothing market seems to be becoming more and more unfriendly to international brands such as Nike and Adidas.
In terms of trends, domestic consumers' willingness to buy luxury goods is weakening in the second half of the fiscal year. It is understood that in the past few years, China's luxury market has been growing rapidly, but recently there have been signs of slowing down, which is a huge challenge for the global luxury industry.
This phenomenon is also reflected in the latest financial reports of the top luxury brands. From the end of March to October, the market value of STOXX Europe's top 10 luxury groups, including LVMH, Hermès, Kering and Burberry, shrank by about $175 billion, according to the data. At the same time, the third quarter of this year also recorded its worst quarterly performance on record relative to the STOXX 600 index, by 25%。
This has a lot to do with the change in the consumption psychology and concept of domestic consumers. At present, with the rise of the national tide, consumers' attention and willingness to buy domestic products are constantly strengthening, and more attention is paid to the cost-effectiveness and practicality of products, especially the younger generation of consumer groups represented by Generation Z.
Driven by this wave, in the domestic sportswear market, a number of domestic brands such as Anta, Li Ning, Xtep, and 361° have a fierce growth momentum and have a tendency to overtake, which has brought a lot of pressure to leading companies such as Nike and Adidas.
According to the data, in 2022, Anta and Li Ning achieved 536 respectively5.1 billion yuan, 285With a revenue of 3 billion yuan, it ranks first and third in China's sports shoes and apparel market. Among them, Anta surpassed Nike China for the first time and ranked first in China's sports footwear and apparel market.
According to the latest financial report data, compared with the revenue volume, Anta has also surpassed Nike and Adidas in the Chinese market, followed by Li Ning, which has also surpassed Adidas in the Chinese market.
In terms of international brands, in the 2023 reporting period (June 1, 2023 to November 30, 2023), Nike's revenue from Greater China in the first half of the fiscal year was approximately 2568.6 billion yuan;Adidas' revenue in Greater China in the first half of the year was about 1297 billion yuan;In terms of domestic brands, in the first half of this year, Anta, Li Ning, Xtep, and 361° all continued to rise in revenue, with revenue of 296500 million yuan, 14 billion yuan, 6.5 billion yuan and 4.3 billion yuan.
However, in terms of sales, Nike's sales strength should not be underestimated.
According to the data, in this year's sports and outdoor Double 11 sales list, Nike ranked first, and the Anta brand and FILA brand under Anta Group ranked first.
In the second and third places, Li Ning ranked among the top five, and Xtep and 361° ranked first.
10. Thirteenth, Hongxing Erke, Jordan and Peak are among the top 20.
Looking back at Nike's second quarter of fiscal year 2024, with the blessing of the industry's peak season, Nike has achieved a major breakthrough in inventory and net profit with the best measures of online and offline efforts and strict cost management measures. However, the secondary market does not seem to be happy with this earnings report.
At present, domestic consumers' willingness to buy luxury goods is continuing to decline, and with the rise of domestic products and the pursuit of high cost performance and practicality becoming the mainstream, consumers in the new era continue to have a higher trust in domestic apparel brands such as Anta and Li Ning. Under the influence of various factors, the growth rate of many international apparel brands led by Nike and others in China is slowing down, and the company's performance guidance for the second half of the fiscal year has also been lowered.
In the future, Nike still has a long way to go in how to tell a new story in China and impress Chinese consumers in the new era.