Nike Q3 Trips But Is Still In The Game

Nike's third quarter results showed signs that the business is improving, even if the turnaround still looks a little winded. Fiscal third-quarter revenue was $11.3 billion, flat from a year ago, while diluted earnings per share came in at $0.35. Those results were broadly in line with the company’s own expectations, but the market focused on what comes next after management said current-quarter sales are expected to fall 2% to 4%. That is not exactly the sound of a victory lap, though it is the sound of a company still willing to call the race honestly.

There were still a few signs that the business is not just standing around admiring old sneakers. North America revenue rose 3% to $5.03 billion, wholesale revenue increased 5% to $6.5 billion, and management said the running category grew more than 20%. Those are useful numbers because Nike’s turnaround depends on rebuilding traction in the categories and channels it chose to stabilize first, and this quarter suggested that effort is beginning to gain some footing. The brand may not be sprinting yet, but at least some of the important muscles appear to be remembering what they were built for.

The trouble is that Nike still has a few loose laces. NIKE Direct revenue fell 4%, gross margin dropped 130 basis points to 40.2%, and Greater China revenue declined 7% in the quarter. Management also said China sales are expected to fall about 20% in the current quarter as the company works through older inventory and tries to reset its position in that market. Add in higher tariffs and softer demand in parts of Europe, the Middle East, and Africa, and the comeback starts to look like a hill workout that keeps finding another hill.

Even so, Nike is not approaching this stretch empty-handed. Inventory was down 1% to $7.5 billion, and the company ended the quarter with $8.1 billion in cash, equivalents, and short-term investments. That does not erase the pressure, but it does give Nike time to keep cleaning up the business without looking financially cornered. That may be the main point right now. The turnaround is taking longer than hoped, but the company still has the balance sheet, the brand, and at least a few categories moving in the right direction. Sometimes the first encouraging sign is not a perfect quarter. Sometimes it is simply a giant company tying its shoes correctly again.

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