If any two businesses are American economy bellwethers, they’d be Nike (NYSE: NKE) and FedEx (NYSE: FDX). Think about it: If people are choosing necessities like food and rent over discretionary items like sneakers, that’s not a positive sign. Moreover, if package-delivery volume is weak, it probably means people aren’t shopping online as much – another red flag for the economy.
Thankfully, fresh quarterly data indicates that both Nike and FedEx managed to overcome persistent inflation and recession worries. It’s conceivable, then, that the U.S. consumer is stronger than the perma-bears expected and that they can carry American businesses to prosperity in 2023.
Nike Overcomes Shipping Issues, Delivers Outstanding Quarter
NKE stock was up 11% during the pre-market hours today, so clearly, there was something positive happening with the footwear retailer. Indeed, Nike’s fiscal 2023 second-quarter results proved that the company could get up and running even while the economy wavered.
So, here’s the scoop. Nike posted revenues of $13.3 billion, up 17% year-over-year (YOY) and higher than Wall Street’s forecast of $12.57 billion. Meanwhile, Nike’s quarterly EPS of $0.85 outdid the analyst consensus estimate of $0.64.
The company managed to achieve these results despite inflationary pressures, which caused Nike’s quarterly gross margins to decrease by 300 basis points to 42.9%. Morningstar analyst David Swartz extrapolated Nike’s expectation-beating results to the broader market, explaining, “It does look like Nike’s situation (and the whole industry, probably) is improving because the shipping problems have mostly been fixed.”
The concerning word here is “mostly,” but hopefully, the demand-versus-inventory problem has been fairly well addressed. In any case, Nike’s victory is really a broad-based victory as it bodes well for similar brands like Foot Locker (NYSE: FL), VF Corporation (NYSE: VFC) (parent company of JanSport and Timberland), and Under Armour (NYSE: UA) (NYSE: UAA) as they tackle supply and inflation-related issues in the coming year.
FedEx Cuts Costs, Reports a Profit Beat
Meanwhile, FDX stock rose 5% during today’s pre-market hours – not quite as dramatic as NKE stock, but impressive nonetheless. FedEx responded to inflation and recession concerns by reducing its overhead, thereby bolstering the package-delivery company’s bottom line.
Don’t get the wrong idea here; FedEx’s second-quarter fiscal 2023 results weren’t all stellar. The company cited “lower global volumes” when reporting that FedEx Express’ quarterly operating income fell 64% YOY. Apparently, ultra-fast package delivery wasn’t an in-demand service during the quarter.
Cost-cutting apparently saved the day, though, as FedEx Ground’s operating income increased 24% YOY “due primarily to a 13% yield increase and cost reduction actions.” Furthermore, FedEx President and CEO Raj Subramaniam specifically cited “acceleration of our aggressive cost reduction plans” as a driver of FedEx’s generally positive quarterly results.
Breaking down the numbers, FedEx’s revenue of $22.8 billion slightly missed analysts’ estimate of $23.74 billion. Again, however, cost reduction helped FedEx overcome its problems: The company managed to post an adjusted quarterly profit of $3.18 per share, exceeding Wall Street’s consensus estimate of $2.81. So, perhaps investors can expect a special delivery of strong returns in 2023 as FedEx and Nike navigate a persistently challenging economic landscape.