Global sportswear giant Nike (NYSE:NKE) reported its latest earnings numbers last week. The numbers were mixed as the company delivered better-than-expected sales but it fell short in overall profitability.
Fourth-quarter revenue of $12.8 billion was up 5% year over year and when factoring out foreign exchange, it rose by 8%. One particularly strong geographical area for Nike was Greater China, where sales grew 16% from the prior-year period as reopenings and a lack of restrictions allowed the company to benefit from a surge in demand.
Unfortunately, despite the encouraging top-line performance, Nike's net income was just over $1 billion and declined 28% year over year. The company has been holding a lot of inventory which has resulted in more discounts as Nike's gross margins declined. At the same time, its selling, general, and administrative expenses rose by 8%.
This fiscal year, the company is only expecting sales growth in the mid-single digit percentages. It's a positive given that the economy could fall into a recession this year.
Over the past 12 months, shares of Nike have risen by around 10%, which is below the S&P 500's gains of 15% during that stretch.
For Nike, the challenge will be whether it can improve on its bottom line while at the same time being able to generate strong growth. Currently, the stock is trading at 28 times its future earnings and that might be a bit of a rich premium to be paying for a company that may have a rough road ahead. Nike has a strong brand but investors may be better off waiting to buy the stock as it isn't terribly cheap and it's nowhere near its 52-week low of $82.22.
