Too Many Shoes: Nike Takes A Hit On Inventory Woes

Image above: Spanish tennis player Carlos Alcaraz

Remember when pandemic supply-chain struggles meant companies didn't have enough inventory? Nike now has the opposite battle, with a glut of shoes and apparel weighing down its latest quarterly results.

For the first quarter of its fiscal year, Nike says revenues rose 4% to $12.7 billion. Nike's direct sales grew 8% to $5.1 billion. And digital sales gained 16%. In North America, Europe, the Middle East and Asia Pacific regions, sales rose in the double-digits.

But net income sank 22% to $1.5 billion. And inventory shot up 44%, an increase caused by ongoing supply chain volatility. In the U.S., inventory was up an alarming 65%.

To liquidate that excess, Nike offered markdowns in its direct channels, pressuring profits. It expects to continue those markdowns heading into the holidays.



And as sports marketing gets closer to normal, the Beaverton, Oregon-based company says demand-creation expenses climbed 3% to $943 million for the quarter.

"Our strong start to FY23 highlights the depth and breadth of NIKE's global portfolio, as we continue to manage through volatility," said John Donahoe, president and CEO, NIKE, Inc.

While that makes for a challenging near-term outlook, David Swartz, an analyst who covers Nike for Morningstar, believes the company's brand value still holds.

 "Despite healthy demand, Nike has recently struggled to manage its product deliveries due to shipping woes, leading to a surplus of out-of-season inventory," he writes. And while additional markdowns will bring down next quarter's results too, "we believe the worst of Nike's inventory issues has passed."

Encouraged by solid back-to-school results, Swartz expects a relatively quick recovery. "Nike appears to have a solid lineup of new products," he adds, "and should get a boost from the FIFA World Cup Qatar 2022."

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