Nike Inc. was thrown off its stride by weaker margins, a big build up of inventory and declines in China — sending shares of the active giant down 9.2 percent in after-hours trading Thursday.
The company’s fiscal first-quarter profits fell 22 percent to 1.5 billion, or 93 cents a diluted share, from $1.9 billion, or $1.16 a share a year earlier.
Revenues for the three months ended Aug. 31 rose 4 percent to $12.7 billion, translating into a 10 percent gain on a currency neutral basis. Nike Direct sales increased 8 percent to $5.1 billion, a 14 percent rise on a currency neutral basis.
Both the top- and bottom-line results came in ahead of the expectations for analysts who, on average, were looking for earnings per share of 92 cents on revenues of $12.3 billion.
However, revenues in Greater China fell by 13 percent to $1.7 billion as that country continued to struggle with COVID-19 restrictions.
Nike’s inventories were valued at $9.7 billion at the end of the quarter, up 44 percent from a year earlier, a jump the company pinned on “elevated in-transit inventories from ongoing supply chain volatility, partially offset by strong consumer demand during the quarter.”
And gross margins declined 220 basis points to 44.3 percent of sales, raising concerns about just how promotional the market could become as the fashion industry and consumers muddle through a weakening economy.
The results appeared to increase only investor skittishness on the company — a powerhouse in the active space that nonetheless finds itself navigating a dicey market complicated by supply chain troubles, inflation and the threat of recession.
Nike’s aftermarket stock decline, to $86.60, came on top of a 3.4 percent drop to $95.33 in regular Wall Street trading before the quarterly update.
But John Donahoe, president and chief executive officer, underscored to analysts on a conference call that Nike was still setting the pace as the world’s largest sports apparel and footwear company.
“Our ability to expand the world of sport and to create the future of sport itself is why I wouldn’t trade Nike’s position with anyone,” Donahoe said. “Consumers continue to rate us their number-one cool and number-one favorite brand and we connect directly and deeply with consumers worldwide. No matter the macroeconomic dynamics, no matter the competitive landscape, the Nike brand and indeed all three of our brands, including Jordan and Converse, have created meaningful relationships with consumers across age, gender, ethnicity and more.”
It fell to chief financial officer Matthew Friend to go over the financial nitty gritty. He said: “This quarter it became clear to us the conditions in North America are shifting once again. Earlier orders by retailers driven by strong consumer demand and less predictable delivery timelines has led to elevated inventory levels broadly across consumer goods. Then transit times began to rapidly improve with signals that further improvement may be coming. At the same time, consumers are facing greater economic uncertainty and promotional activity across the marketplace is accelerating. Especially in apparel. As a result, we face a new degree of complexity.”
Friend said the company is now taking “decisive action to clear excess inventory, focusing on specific pockets of seasonally late product, predominantly in apparel.”