Nike reports robust sales amid sustained inventory pileup

NIKE posted another quarter of inventory buildup, but quarterly sales exceeded Wall Street’s estimates, alleviating investor concern and sending the shares up in late trading.

Global sales rose 17 per cent to US$13.3 billion in the quarter that ended Nov 30, surpassing the average estimate of US$12.6 billion compiled by Bloomberg. Sales beat expectations in all regions except for China. Gross margin, a key gauge of profitability, also exceeded expectations, and executives said the year-end performance was strong.

“Our holiday season momentum has continued through the first few weeks of December, despite operating in a largely promotional marketplace,” chief financial officer Matt Friend said during the company’s conference call.

The shares rose 13 per cent at 5.39 pm in after-market trading in New York on Tuesday (Dec 20). The stock has declined 38 per cent this year through Tuesday’s close.

While inventories jumped 43 per cent from a year earlier, company executives said the number was inflated by abnormally low levels a year earlier, when pandemic measures in the manufacturing hub of Vietnam and long freight times disrupted retail businesses around the world.

Excess merchandise at Nike and across the apparel industry has prompted promotional activity that has eroded profitability and spooked investors. Nike’s gross margin fell 300 basis points to 42.9 per cent as management moved aggressively to liquidate inventory, especially in North America. The company plans to sell excess merchandise via off-price retailers through the rest of the year. Even so, the gross margin still surpassed analysts’ estimates.

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Nike upped spending on marketing in an effort to lure in more shoppers. So-called demand-creation expenses were up 8 per cent in the quarter to US$1.1 billion, mostly due to a spike in advertising.

Sales in China fell 3 per cent to US$1.79 billion — below analysts’ average estimate. Nike said demand for its products grew in China, though it experienced significant disruption due to Covid lockdowns. Executives said they’re closely monitoring the situation as the government eases its zero-Covid policy.

For the full fiscal year, which ends in mid-2023, Nike sees revenue growth in the low teens on a currency-neutral basis. The company maintained its projection that the gross margin will fall 200 to 250 basis points. BLOOMBERG