• by Sarah Mahoney  @mahoney_sarah, September 29, 2023

Industry observers cheered Nike’s latest earnings report, encouraged by the apparel giant’s robust profits and ability to navigate inventory challenges. And with the launch of a new collection with Chinese designer Feng Chen Wang, they’re also encouraged by improving sales throughout Asia.

Nike says sales in the fiscal first quarter rose 2% to $12.94 billion on a currency-neutral basis, compared with $12.69 billion in the comparable period last year. Observers had been expecting a gain of 3.2%. Sales in direct channels rose 6% to $5.4 billion, and digital sales inched up 2%. Wholesales revenues inched up 1%, reaching $7 billion.

Revenues for the Nike brand advanced to $12.4 billion, up 3%. That’s because sales jumped 12% in Greater China and notched gains in Europe and the Asia-Pacific region. Those increases were strong enough to offset declines in North America.

Converse sales dropped 9% to $588 million, with softness especially pronounced in North America.

Nike spent $1.1 billion on demand creation, a 13% rise, primarily due to advertising and marketing expenses.

Net income slipped 1% to $1.5 billion, a better performance than Wall Street had expected.

On a conference call webcast for investors, Nike executives called out some of the quarter’s biggest marketing wins. That includes marketing surrounding the summer’s World Cup games, which resulted in its TikTok efforts increasing engagement among Gen Z women by 172%.

Nike reported double-digit sales gains in China, where the company offers its most premium retail environment. This summer, that included a three-day Sportchella event, providing movement, mindfulness and shopping opportunities resulting in 2 billion impressions.

“Our first-quarter results demonstrated the impact of staying on the offense over the past fiscal year,” says Matthew Friend, executive vice president and chief financial officer, in the earnings announcement. “With a healthy marketplace and another quarter of brand and business momentum, we are strengthening our foundation for sustainable, profitable, long-term growth.”

Oppenheimer & Co. reiterated its positive rating of Nike, expecting the company to outperform its peers. “We continue to look very favorably upon ongoing signals of operational and financial stability at Nike, particularly against a now more uncertain macro backdrop in the U.S. and across the globe,” writes Brian Nagel, an analyst who follows Nike for Oppenheimer. He cites “ongoing, superb fundamental prowess at the company. In our view, within the Nike enterprise, the groundwork is now established to support strengthening sales and margins trends over the next several quarters.”

“We believe the firm’s competitive advantages, including its innovative product, robust marketing, and global focus, allow it to outperform competitors,” writes David Swartz, an analyst who follows Nike for Morningstar.

“Although second-quarter sales growth is likely to be negligible, we do not think Nike will need to resort to heavy discounting as its inventory was down 10% at the end of the first quarter,” Swartz continues.