Nike (NKE  ) shares were 6% higher following the company's better than expected fiscal second-quarter earnings that beat expectations on the top and bottom line. Strength was attributed to North American demand coming in better than expected, while Chinese sales disappointed. The company also affirmed its full-year guidance and expects revenue growth in the mid-single-digit range.

Before its earnings report, Nike shares were down about 12% due to a stock market sell-off and concerns about the outlook for consumer spending. In 2021, Nike shares were up 16%, slightly underperforming the S&P 500 (SPY  ).

Inside the Numbers

In its fiscal Q2, Nike reported $0.83 in earnings per share, topping expectations of $0.63 per share and a 14% increase from last year. Further, revenue also came in above expectations at $11.36 billion vs. $11.25 billion. This was a 1% increase from last year.

The company acknowledged that some supply chain issues including a COVID-related factory closure led to decreased inventories and shipments, leading to some demand being unfulfilled. The company said there was some backtracking following the progress made in the previous quarter. Overall, production is at 80% of pre-pandemic levels and is confident that it should get back to 100% by its fiscal 2023.

North American sales growth came in 12% which was the highest of all locales. European, Middle East, and African sales grew by 6%.

Chinese sales were the big disappointment at down 20%. Some weakness is due to increased nationalism and a backlash against Western brands and another factor is the slowdown in its economy. The company blamed low inventories and COVID-related lockdowns.

Nike's digital sales increased by 12%. This is particularly impressive given the huge surge in sales last year and remains Nike's primary focus as these sales have higher margins and there is an increased potential for recurring revenue.

In terms of guidance, Nike reiterated its revenue forecast despite acknowledging an increase in supply chain challenges. Last quarter, the company decreased its revenue forecast due to these issues and labor shortages.

Analysts are forecasting full-year fiscal 2022 earnings of $3.59 per share and $47.1 billion, equating to 6% revenue growth.

For the last few quarters, investors had been focused on Nike's digital sales as that has the potential to lead to higher multiples for the company. Now, it seems that supply chain challenges are the major issue as it's eroding margins and preventing it from fully realizing demand. And looking forward, it's clear that a big focus will be on the company's performance in China and whether the weakness is a one-off or a new trend.