Nike (NYSE: NKE) shares fell in early Friday trading after the retailer reported softer-than-reported profit and margin figures for its fiscal fourth quarter.
Despite a robust year-to-date rally in equities fueled by optimism about faster-than-expected adoption of revolutionary generative AI technology, Nike shares trade in the red YTD as the company struggles with the challenging macroeconomic environment.
Although $NKE stock managed to stage a minor rebound in recent weeks since posting a swing low on June 1, shares have generally struggled to gain any traction given that the stock trades almost 40% off its record high posted in November 2021.
How Did Nike Perform in FQ4?
Nike reported earnings per share of 66 cents, missing the analyst target by a cent. Revenue rose 4.8% year-over-year to $12.83 billion, fueled by a strong rebound in one of Nike’s key regions – Greater China.
Sales in this country jumped 16% YoY to $1.81 billion, offsetting slower growth in North America and EMEA, where sales increased 4.7% and 3%, respectively. Even more importantly, Greater China’s Ebit surged as much as 70% YoY to $529 million, cruising the consensus of $444.1 million.
The sneaker giant generated $8.55 billion from its core business segment – Footwear. Sales in the Apparel business division fell modestly to $3.23 billion. Nike generated an additional $586 million from its Converse brand sales, although revenue in this business fell 1.2% YoY.
“FY23 was a milestone year for NIKE as our unique advantages continue to drive competitive separation. Our investment in innovation and our digital leadership are fueling broad-based growth across our portfolio of brands, as we create value by serving the future of sport,” said John Donahoe, President & CEO, Nike.
One of the positives in Thursday’s earnings report was that direct sales rose as much as 15% to $5.5 billion. The company made a pivot towards its direct-to-consumer (DTC) in 2020 and Donahoe rejected the notion that Nike is changing its strategy again.
“Our direct business will continue to grow the fastest but we’ll continue to expand our marketplace strategy to enable access to as many consumers as possible and drive growth,” said Nike CEO John Donahoe.
He added that the key goal for Nike is to meet consumer’s needs and in this case, it is to better understand where consumers want to shop for Nike’s products.
“Consumers want digital and physical access, they shop across both channels, they want mono-brand and multi-brand. They use different shopping occasions to use different channels,” added Donahoe.
Sales at Nike-owned stores jumped 24% while online revenue increased 14%. Still, the gross margin fell 140 basis points to 43.6% from the year-ago period. Inventory levels slightly rose to $8.45 billion, but still better than the analyst expectations for $8.88 billion.
The company ended the quarter with cash reserves of $7.44 billion, down 13% YoY.
Key Factors to Consider When Swing Trading
Swing trading is an investing approach where positions are held for longer than a day. As such, swing trading ists in between day trading (where positions are opened and closed in a single trading day) and trend trading (where positions are opened for a longer period of time).
In swing trading, positions are held from days to weeks as traders wait for their trading idea to materialize. Identifying a solid swing trading opportunity could be a tricky part. In this context, it is important to consider two factors: liquidity and volatility.
Liquidity is a financial term that refers to the ease with which one can convert an asset or security to cash. As such, cash is the most liquid asset. When the spread between the bid and ask is tight, it means that the market is more liquid.
On the other hand, volatility shows how large an asset's prices swing. In the stock market, higher volatility is often associated with a swing in either direction, especially when there is a period of a market selloff.
In this context, swing traders would want to pick large-cap stocks (high liquidity) that also offer a higher degree of volatility. Why? Because in order to implement a successful swing trade, one first needs a solid price movement in one direction.
All of this might sound intimidating. However, there are plenty of useful tools available to help. Technology has touched nearly everything today, from managing roofing projects to seeing and communicating to whoever approaches your home, even if you’re not there. Technology provides a new level of convenience in many aspects of our lives - including stock trading. Let’s see what this looks like when applied.
Is There a Swing Opportunity in $NKE Stock After Mixed EPS?
With Nike stock down over 4% in early Friday trading, the question arises: Is there a swing opportunity in shares of the famous sports retailer? Nike is a popular stock for retailer traders given the brand’s recognition and importance across the globe.
Nike is also a popular stock among analysts. 24 out of 37 Wall Street analysts rate Nike stock with a Buy or equivalent rating with just 2 analysts believing that the stock will underperform the market over the next 12 months. Technical indicators, as followed by the leading options trading alert services, also point out that Nike stock is a Strong Buy, which is understandable given the YTD underperformance.
It is also important to acknowledge that stocks tend to downperform or, at least, trade sideways after a soft/mixed earnings report. In case the S&P 500 also retraces after a strong rally, Nike shares could continue to slide as investors would be reluctant to hold given continued profit/margin pressures.
Hence, a move towards the purple box (in the chart below) would offer a buying opportunity in Nike stock. This zone hosts several important technical levels, including the $100 round figure (which is psychologically important), the key 61.8% Fibonacci retracement, as well as several swing lows and highs that ended in this zone.
A move lower to $100 (shares offered around $110 apiece in early Friday trading), coupled with increased volume, would definitely offer a solid swing opportunity in $NKE. High volume would offer clues that “smart money” is interested in buying Nike shares at these increasingly attractive levels.
A move to, at least, ~$113 (200 daily moving average) or ~$118 (100 daily moving average) could occur given the prior move lower. The zone above $125 offers another important technical zone, which could act as a magnet for price action if bulls can facilitate strong demand at the levels discussed above.
On the date of publication, Shane Neagle did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.