The start of 2022 didn't treat Nike (NKE -19.98%) stock well as sales in the company's important China region tumbled. In its fiscal quarter ended Nov. 30, 2021, Nike's revenue from the Greater China region dropped 24% excluding currency changes, leading to stagnation in its overall year-over-year sales.
Add to that supply chain issues and inflation leading to higher freight and raw material costs, and shares dropped 30% by the middle of March. But consumers remain resilient, and the company has worked to control what it can, resulting in a fiscal 2022 third quarter that surpassed analyst expectations and reignited investor interest.
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In its financial update released last night, Nike beat analyst expectations for both revenue and earnings, and said its sales in China have started to rebound. Overall revenue grew 8% compared to the year-ago period, driven in part by a 22% increase in its Nike brand digital sales. Digital sales in its North American business were particularly strong, jumping 33%.
In its conference call with investors, Nike CFO Matt Friend stated:
Across the marketplace, holiday retail sales finished strong, and spring retail sales are off to a great start, fueled by strong demand for performance men's running, Air Jordan 1, classics footwear and our apparel fleece franchises.
Friend added an optimistic outlook looking toward the company's next fiscal year. He alluded to supply chain and other challenges many apparel retailers are currently facing, and added: "We are focused on what we can control while there are several new dynamics creating higher levels of volatility."
The company has focused on controlling costs and protecting margins. In the most recent quarter, gross margin increased 100 basis points to 46.6%. That has been a consistent theme over the past nine months as Nike has increased revenue at a greater rate than its cost of sales.
Nike's sales and earnings plunged in the early months of the pandemic. While its stock price held up relatively well over the ensuing difficult months, its valuation as measured by the price-to-earnings (P/E) ratio remained elevated. Investors finally seemed to tire of waiting for the company's valuation to come back in line this year, and shares plummeted. With that correction in share price, combined with growing earnings, Nike's P/E ratio has now fallen to the lowest level since prior to the pandemic impacts. That makes it a good time for investors to look back into owning Nike stock.
