Shares of global athletic apparel company Nike (NYSE: NKE) dropped on Friday after the company dropped financial results for its fiscal third quarter of 2024. The company’s results fell short of management’s previous outlook. And that’s why Nike stock was down about 7% as of noon ET.
Higher prices weren’t enough to lift results
In Q3, Nike’s revenues were up less than 1% year over year thanks to higher prices. These “strategic pricing actions” were intended to improve the company’s profit margins, which they did. But not by as much as management had expected.
For Q3, Nike had a gross margin of 44.8%, even though management had expected a gross margin of at least 44.9%. That’s a minuscule miss. However, management also expected year-over-year earnings growth. But its diluted earnings per share (EPS) fell 3% to $0.77.
That said, it’s not as bad as it seems for Nike. The company recently laid off some workers, and related restructuring charges came into play in Q3. Without these one-time items, the company would have earned diluted EPS of $0.98, up 24% year over year.
The bigger issue for Nike
While financial results for Nike were respectable, the company’s growth is near zero, and management expects revenue to pull back in the first half of its fiscal 2025, which starts in June. Therefore, for calendar 2024, there’s not much to look forward with Nike. The company’s revenues could drop slightly, and its profits could grow, but by meager amounts.
For a stock that trades at a premium valuation compared to many of its shoe stock peers, there’s just not enough growth with Nike to excite investors. That said, this has been a great company over the long term, so it’s worth monitoring in the coming year for signs that its outlook is improving.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
Why Nike Stock Dropped Today was originally published by The Motley Fool
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