Nike stock plunges as investors trip over all that inventory

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Nike’s stock plunged around 10% in pre-market trading on Friday following the sneaker giant’s latest earnings. The company’s ticker page was the most active on the Yahoo Finance platform.

While the company reaffirmed its full fiscal sales outlook (excluding the impact of the strong dollar), Nike’s quarter and outlook was littered with red flags. The company’s earnings call also isn’t winning fans on Wall Street for its more downbeat than expected tone.

Here’s a rundown of what you need to know on Nike’s quarter.

Nike earnings overview:

Net Sales: $12.69 billion vs. $12.31 billion estimate

Gross Profit Margin: 44.3% vs. 45.4% estimate

Earnings: $0.93 vs. $0.92 estimate

Inventory: +44% to $9.66 billion vs. $6.91 billion estimate

Why Nike stock is falling, according to Yahoo Finance:

Gross profit margins dropped significantly and missed analyst estimates as markdowns piled up.

Inventory ballooned 44% year over year as the economy continues to slow.

China sales missed analyst estimates.

Nike cut its full fiscal year gross profit margin guidance.

Strong dollar is taking a big bite out of overall sales.

Real Madrid’s Fernando Gago (L) is tackled by Atletico Madrid’s John Heitinga during their Spanish first division soccer match at Vicente Calderon stadium in Madrid October 18, 2008. REUTERS/Sergio Perez (SPAIN)

What Wall Street is saying:

BMO Capital Markets Managing Director Simeon Siegel

Rating: Outperform (reiterated)

Price Target: $110 (down from $128)

“In what’s becoming a painful cycle, Nike again beat revenue/EPS, but missed margins and guided down. N.A. sales beat, but on heavily-compressed margins, with ongoing declines ahead; which begs the question, Why force revenues if they drive earnings before interest, taxes [EBIT] declines? Sell less, Charge more, Make more. And importantly, although direct-to-consumer [DTC] grew, both gross margin and EBIT rates (and dollars) declined (again), furthering our fears of misplaced DTC expectations. Although we still see its scale as long-term competitive advantage, for today, Nike looks increasingly like other over-inventoried promo-chasing retailers.”

Jefferies Managing Director Randal Konik

Rating: Buy (reiterated)

Price Target: $115 (down from $130)

“While some near-term pain ahead, long-term remains attractive. Nike is one of the best-known brands out there, and its distribution model is moving swiftly towards DTC. Despite inflationary pressures impacting all companies, we believe Nike remains well-positioned. Therefore, we believe shares are attractive as the stock currently trades at ~22x FY’2 P/E, below the company’s 5-year average of ~29x.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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