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Nike Stock Slides As As Margin Pressures, China Worries Offset Q4 Earnings Beat

"We think we're well positioned for growth in fiscal year 2023 ... having said that, we did take a cautious approach to Greater China," said CFO Matthew Friend.

Updated at 10:03 am EST

Nike  (NKE)  shares moved lower Tuesday after the world's biggest sports apparel group cautioned the surging transport costs, as well as a strong U.S. dollar, would eat into profit margins over its coming financial year.

Nike posted stronger-than-expected fourth quarter earnings of 91 cents per share late Monday, with Street-beating revenues of $12.24 billion, as solid gains in its direct-to-consumer business offset a Covid-linked sales slump in China.

Gross profit margins narrowed 80 basis points to 45%, just shy of Street estimates of 46.6%, as input and transportation costs surged. North America revenues were down 5%, but direct-to-consumer sales were up 7%, helping offset both the impact of a stronger U.S. dollar and the Covid-related slump in China sales.

Shares in the group slumped lower, however, after it forecast fiscal 2023 revenues would grow by 'low single digits' when compared to 2022 levels, thanks in part to the headwinds of a stronger U.S. dollar, with profit margins falling as much as 50 basis points.

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"When we look at our brand strength and momentum, our product pipeline against some of the biggest growth opportunities that we have, we think we're well positioned for growth in fiscal year '23," CFO Matthew Friend told investors on a conference call late Monday.

"Having said that, we did take a cautious approach to Greater China, and we're doing that because as we look at what disrupted our performance in the fourth quarter and focusing on what we can control, we felt strongly that prioritizing a healthy pull marketplace is the right action for us to take given the ongoing risk that we see in that marketplace."

Nike shares were marked 2.6% lower in early Tuesday trading to change hands at $107.66 each, a move that would extend the stock's year-to-date decline to around 35.5%.

Inventories were also up, rising 23% from last year to $8.4 billion, thanks in part to extended lead times from supply chain disruptions, with the group noting it's "made some adjustments to our plans around markdown rates and partnership with our wholesale partners to ensure that we clear some of the inventory that isn't owned by Nike but that's in the marketplace."

Last week, Nike, which paused business from its stores and e-commerce channels in Russia and Ukraine earlier this year, said it will scale-down operations over the coming months and permanently exit the county. Nike said the move would incur a charge of around $150 million.

The move follows similar decisions from blue chip American companies such as Starbucks SBUX and McDonald's MCD, which sold its Russia operation earlier this month and took a non-cash hit of around $1.3 billion.