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Nike sales rise 4% as excess inventory piles up

The American sportswear giant reported a revenue rebound but ongoing supply chain disruptions have wreaked havoc on inventory levels. Shares fell nearly 10 per cent on Thursday.

 

By MADELEINE SCHULZ

Published September, 30th 2022

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Nike said revenue increased 4 per cent to $12.7 billion in the first quarter of 2023, beating analyst expectations and led by growing direct and digital sales.

It’s a rebound after revenues fell 1 per cent last quarter, but an inventory pile up caused by supply chain disruptions weighed on the sportswear giant. Shares were down nearly 10 per cent in after-hours trading on Thursday.

 

Nike has been dealing with supply chain challenges related to Covid-19 particularly in the Chinese market, in line with the rest of the retail sector. These issues, including increased freight and logistics costs, contributed to an inventory increase to 44 per cent, at $9.7 billion.

 

"Our strong start to [fiscal 2023] highlights the depth and breadth of Nike’s global portfolio, as we continue to manage through volatility,” said John Donahoe, Nike president and CEO.

 

Sales in Greater China were down 16 per cent to approximately $1.7 billion as the region continues to deal with Covid-19 restrictions. Donahoe said he expects sales in China to recoup, though he didn’t offer a timeline. “Chinese consumers are emerging from these lockdowns with a hunger for innovation, quality and energised storytelling,” said Donahoe.

 

Offsetting sales declines in China, North America saw 13 per cent growth versus the prior year, to $5.5 billion, and EMEA was up 2 per cent. While Jane Hali and Associates analyst Jessica Ramirez is cautious about Nike’s exposure in China (the region comprises 17 per cent of total sales), she is confident that North America can continue to offset.

 

Nike has continued to focus on direct-to-consumer sales, which were up 8 per cent for the quarter to $5.1 billion. The July opening of the Nike Rise store in London, following the success of Nike Rise in China and Korea, reflects this commitment to DTC sales, which Donahoe highlighted as an example of the brand’s efforts to deliver tailored, localised in-store experiences.

 

Nike’s digital sales continued to grow, increasing by 16 per cent, following an annual digital revenue growth of 18 per cent last quarter, highlighting the “fundamental shift in consumer behaviour toward digital”, said Donahoe. This was primarily driven by the EMEA region’s 46 per cent spike in digital sales.

 

Looking ahead, Nike expects that inventory instability has peaked in the first quarter and anticipates improvement throughout the coming year. The brand plans to clear out excess inventory via more aggressive liquidation (predominantly in North America), and expects to be in a better position by fiscal 2024. The brand also plans to “stay on the offence”, says Donahoe, and closely monitor the effect of high inflation on consumer demand, which it maintains has been consistently strong.

 

“Our teams continue to prove their ability to operate through volatility, while also staying focused on the long term,” Donahoe told investors.

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