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Nike (NKE) earnings Q1 2023

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A girl shops for shoes within the Nike Factory Store on the Outlet Shoppes at El Paso, in El Paso, Texas on November 26, 2021.

Paul Ratje | AFP | Getty Images

Nike on Thursday said it had a robust first fiscal quarter despite supply chain issues, in addition to declining sales in Greater China, its third biggest market by revenue.

But Nike’s shares dropped in after-hours trading as the corporate described problems with overstocked inventory levels and the aggressive steps it’s taking to lower them.

Nike and other retailers have been facing supply chain headwinds and Covid-related store closure disruptions.

Like other retailers, Nike has been facing supply chain headwinds, resembling an increase in each shipping costs and shipping times in recent quarters.

Here’s how Nike did in its first fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

  • Earnings per share: 93 cents vs. 92 cents expected
  • Revenue: $12.69 billion vs. $12.27 billion expected

As delivery times and consumer demand rose this yr, retailers responded by ordering inventory sooner than usual. When in-transit shipping time began to enhance quickly, Nike CFO Matthew Friend said, it led to swelling inventories. 

The Nike executive noted that this, mixed with consumers facing greater economic uncertainty, promotional activity has accelerated across the marketplace, especially for attire brands. 

“Because of this, we face a latest degree of complexity,” Friend said on the decision with investors on Thursday, adding that Nike will look to clear inventory for specific pockets of “seasonally late products,” especially apparel. 

Nike executives said its inventory in North America alone grew 65% in comparison with last yr, reflecting a mix of late deliveries for the past two seasons and early holiday orders which are now scheduled to reach sooner than planned. 

That has resulted in having just a few seasons’ value of merchandise available at the identical time. Due to that, Friend said, “we have decided to take that inventory and more aggressively liquidate it in order that we will put the latest and best inventory in front of the buyer in the precise locations.”

Nike reported net income for the three-month period ended Aug. 31 fell 22% to $1.5 billion, or 93 cents per share, compared with $1.87 billion, or $1.18 per share, a yr earlier.

Revenue through the period was up 4% to $12.7 billion, compared with $12.2 billion a yr earlier.

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Recently, Nike has been shifting its strategy and searching to sell its sneakers and other merchandise on to customers and reduce on what’s sold by wholesale partners like Foot Locker. The corporate said on Thursday its direct sales grew by 8% to $5.1 billion, and sales for its digital-brand rose 16%. On the flip side, sales for Nike’s wholesale business sales increased by 1%.

In its first fiscal quarter, Nike said its inventory rose 44% to $9.7 billion on its balance sheet from the identical period last yr, which the corporate said was driven by supply chain issues and partially offset by strong consumer demand.

Total sales in Greater China were down 16% to about $1.7 billion, compared with nearly $2 billion a yr earlier. The corporate has faced disruption in its business within the region, where Covid lockdowns have affected its business. Nike had said within the previous quarter it expected issues in Greater China to weigh on its business.

Meanwhile, total sales in North America, Nike’s largest market, increased 13% to $5.5 billion in the primary fiscal quarter, compared with roughly $4.9 billion in the identical period last yr. The sneaker giant has constantly said consumer demand, especially within the U.S. market, hasn’t waned despite inflation.

The corporate said Thursday it expects revenue within the second fiscal quarter to grow low double digits based on strong consumer demand, despite supply chain and foreign exchange currency headwinds.

Read the corporate’s earnings release here.

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