Nike Sales Jump as It Works Through Inventory Glut
Profit at the sneaker maker fell 11% as it relied on higher markdowns
Nike Inc. NKE 3.64% made progress working through the inventory glut that squeezed the sneaker maker last year, reporting a 14% jump in quarterly sales and raising its revenue growth target.
The sportswear company said its inventory increased 16% in the quarter ended Feb. 28 compared with the same period a year ago. Inventories had swelled by more than 40% in each of the prior two quarters.
The company ended February with $8.9 billion of inventories, down from $9.3 billion at the end of November.
“We are increasingly confident that we will exit the year with healthy inventories across the marketplace,” Nike finance chief Matthew Friend said Tuesday on a conference call with analysts.
Higher markdowns once again hurt profit margins, though Nike’s quarterly earnings came in above Wall Street’s expectations. The company said net income in the quarter fell 11% to $1.24 billion.
Recent unrest in the banking sector, along with elevated inflation and rising interest rates, has weighed on U.S. consumer spending. Spending at retailers declined in February, according to the Commerce Department, and consumer sentiment fell in March for the first time in four months, according to a University of Michigan survey.
Mr. Friend said that Nike was closely monitoring the building pressure on consumer confidence but that demand for Nike’s products was elevated despite macroeconomic uncertainty.
Executives said that full-price sales remained strong and that the company had been able to increase prices across its portfolio. The company is now forecasting a revenue growth rate in the high mid-single-digit percentage for the fiscal year ending in May.
Nike executives said last year that they thought the company was past its inventory peak. Nike had started increasing discounting last summer but worked more aggressively to clear out items in the fall quarter.
For the past two years supply-chain snarls have pinched Nike’s growth. The company initially had a lack of inventory because of Covid-19 lockdowns and factory closures in Vietnam and China. Then the company increased orders to both meet consumer demand and get ahead of transit constraints.
To deal with the excess inventory, Nike executives said in December that they were cutting orders from suppliers. The company also leaned on wholesale partners, a reversal from its long-term plans to focus on direct-to-consumer sales. Wholesale revenue increased 12% year over year.
Wholesale-revenue growth will be moderate for the next few quarters as the company expects less product from its suppliers, but executives said gross margins would decline in the next quarter.
Executives said inflationary costs in logistics and increased product input costs were adding pressure on the company’s profitability. “We will continue to focus on managing those levers together in order to try to drive profitable growth,” Mr. Friend said.
In China, Nike saw a rebound in traffic at its stores in January and strong sales through February, executives said—an improvement from what the company had reported in December when it dealt with different Covid policies. The company reported almost flat quarterly sales in the region compared with the same period a year earlier.