1 The CFO Doesn’t Worry About the Economy (Yet)

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When Nike (NKE -1.28%) released its fiscal fourth quarter 2022 results on June 27, it was our first major look at how consumer behavior has changed in the first half of the year as interest rates rise and the economy was showing signs of slowing down.

There were a few weak spots, but there was no indication that we were headed for economic calamity. For now, Nike CFO Matthew Friend doesn’t think consumers are backing down at all, despite what the market seems to believe.

NKE Total Return Price given by Y-Charts.

What Nike thinks about the economy

I believe sporting goods, shoes and apparel are a great indicator of economic health because they are a long term necessity, but in the short term they are more of a discretionary purchase. I need shoes, but I can also put off buying another pair for a month or two if needed.

Recent financial results show some weaknesses for Nike and some strengths. Revenue decreased 1% in the fiscal fourth quarter ended May 31, although it increased 3% after adjusting for currency fluctuations. Revenue increased 20% in Europe, Middle East and Africa, and 24% in Asia-Pacific and Latin America. Unsurprisingly, revenue from China fell 20% after shutdowns kept millions at home and sales in North America fell 5%.

But the management does not seem too concerned about the economic situation. Friend said: “We continue to monitor consumer behavior closely and see no signs of backing down at this time, so we continue to execute the strategy and plan we have, which is working.”

If there was a big shift in consumer behavior, then Nike should see it. At the end of June, the company is not experiencing a pullback and forecasts suggest that the consumer could strengthen.

More growth to come

In fiscal 2023, Nike expects revenue to grow by a low double-digit percentage. There may be pressure on margins due to rising material and freight costs, but consumer demand appears to be strong.

There has been a lot of concern about the economy and slowing consumer spending. But if Nike doesn’t see it now or until mid-2023, at the end of the fiscal year, should investors be a little less worried?

A data point to keep in mind

The coming months will tell us a lot about the state of the economy and the stock market. There are still millions of job openings, and consumer goods companies like Nike don’t seem to see any weakness in their spending right now.

On the other hand, gas prices are still high, rents are rising and interest rates are rising. These are the factors that most concern investors today.

Take Nike’s earnings and commentary as a data point to keep in mind as more companies report results in the coming weeks. The economy may not be as bad as the stock market is telling us – at least right now.

Travis Hoium has no position in the stocks mentioned. The Motley Fool holds positions and recommends Nike. The Motley Fool has a disclosure policy.

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