Shares of athletic apparel company Nike (NKE -11.83%) got hammered on Friday after the company turned in disappointing financial results for its latest quarter. Slowing sales have some worried that the company is losing market share. And that’s why Nike stock was down nearly 11% as of 10 a.m. ET.
How bad is it for Nike?
Nike just reported financial results for its fiscal second quarter of 2024. In Q2 (which ended on Nov. 30), the company generated revenue of $13.4 billion, which was only up 1% year over year. And this outcome was certainly below the market’s expectations as well as below management’s expectations.
Nike’s management had guided for full-year fiscal 2024 revenue growth in the mid single digits. But after its Q2, management now only expects 1% full-year growth.
Wall Street didn’t like this. For example, a note from Truist pointed out better growth for companies such as Lululemon Athletica and On Holding. Nike’s comparatively weak results could suggest it’s losing market share to other players.
Time to panic?
The flip side of this is that Nike’s profitability is strong and it could get stronger. The company’s Q2 diluted earnings per share (EPS) were up 21% year over year. Net income was up in part due to a better mix of digital sales. And EPS grew faster than net income thanks to share repurchases.
Moving forward, Nike’s management might only expect 1% full-year revenue growth. But it plans to reduce expenses and reinvest that money into growth. And it also has about $11 billion left on its share repurchase authorization.
I believe it’s premature to say that Nike is permanently losing market share to upstart rivals. This is a company with a largely stable business and plenty of resources to compete better. The sell-off today is perhaps warranted given its underperformance for the quarter. But it’s not time for shareholders to panic about the long term.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica, Nike, and Truist Financial. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
