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30 Jun 2023
First Take: JD Sports Fashion - Nike 4Q23

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First Take: JD Sports Fashion - Nike 4Q23
JD Sports Fashion Plc (JD:LON) | 80.6 0 (-0.1%) | Mkt Cap: 4,137m
- Published:
30 Jun 2023 -
Author:
Ben Hunt, CFA | Kate Calvert -
Pages:
4 -
NIKE 4Q revenues ahead/earnings slightly below consensus. Inventory flat YoY (vols down), ahead of expectations
Nike reported Q4 revenues up 5% (+8% CC) to $12.83bn vs cons £12.58bn. Direct led the way (stores +24%/digital +124%) with Q4 revenues +15% (+18% CC). Wholesale Q4 revenues were down 2% (+2% CC) with a moderation in growth planned as Nike focused on eliminating excess stock from its marketplace. Q4 earnings at $0.66 were marginally below consensus of $0.68, which was mainly due to higher opex, with gross margin down 140bps due to COGS inflation, higher freight/markdown and FX. Q4 North America sales grew 5% with EMEA up 3% (+7% CC). Encouragingly, Q4 inventory was flat YoY at $8.5bn (cons $8.8bn), units down double-digits and total market inventory (Nike + partners) down, according to management.
FY24 – Tighter buy expected to translate into higher margins
Nike FY24 guidance is for mid-single-digit revenue growth (cons +5.8%), which has a 4 points headwind from accelerated wholesale shipment (2022 orders slip into 2023) and excess stock liquidation. Gross margin is expected to be up 140 to 160 bps. Above-average margin improvement is expected by management, which should continue into 2025. The buy has been tightened. A low single-digit price increase is expected. Nike’s management is planning to improve the full-price mix (it expects it to improve to c.65%), which is a positive from an industry perspective in our view.
Longer term, NIKE’s team is still targeting high 40%/high teens gross/EBIT margins and accepts the consumer will decide if its 60% Direct mix target is ever achieved (FY23 40% total direct & digital 24%), though the focus remains on driving Direct.
There was little new from NIKE’s Q4/FY update from a JD perspective
For the industry, it is encouraging that Nike has cleared its stock effectively, its supply chain is back to normal and it is focused on improving profitability. The strength of JD Sports’ relationship with Nike is evidenced by the fact it was called out again as a key strategic partner on the analyst call. In our view, JD’s proposition complements the brands’ own DTC strategy and gives the brands access to a different customer base. We believe having ramped up its opening programme, which will hold back growth in FY24, JD is well-positioned to deliver double-digit growth for the foreseeable future. BUY