Nike shares are down 10% as they forecast cheaper apparel for at least the rest of the year

Shares of Nike Inc fell as much as 10% after hours on Thursday after executives at the sports gear giant said a price-cutting effort to clear off-season apparel from North American warehouses would reduce overall revenue for the rest of the fiscal year. warned of a major potential blow from the strengthening of the dollar.

Management also said they expect competitors to continue cutting prices at least through the end of the calendar year as they try to clear their inventories. But Nike executives said inventory levels in North America likely “peaked” in the first quarter ended Aug. 31 and expected levels — with newer, seasonally adjusted, in-demand product — to level off in the coming months. preparing for the holiday rush.

“We are taking aggressive steps to clear out excess inventory, focusing on specific pockets of seasonally delayed products, primarily apparel,” Chief Financial Officer Matthew Friend said on Nike’s earnings call.

He added that he expects the moves to have a “transient impact” on total revenues for the year.

According to Dost, Nike’s inventory levels, which rose 44% in the third quarter, led to late deliveries last year after factories closed in Asia, where most of its shoes are made.

But these late deliveries are now mixed with holiday season deliveries that will arrive earlier than planned. What came before, executives said, was a function of earlier orders — due to shipping delays that characterized the past year — and then a sudden, more recent improvement in those shipping times.

And as the U.S. dollar strengthens, Friend said it expects the full-year negative impact of foreign currency on reported sales and earnings before interest and taxes to be $4 billion and $900 million, respectively.

Still, executives said inventory management in China is “ahead of schedule” as it recalibrates supply and manages restrictions there due to COVID-19. And despite rising prices, they said consumer demand is still strong. Friend and CEO John Donahoe reiterated that Nike told customers, “No. 1 cool” and “No. 1 favorite” brand.

Shoes like the Air Max Scorpion — which offer “the most air in terms of pounds per square inch” — reflect Nike’s commitment to innovation, Donahoe said. The company’s Travis Scott and LeBron 20 sneakers also remain popular, executives said. Back-to-school season and demand for its Jordan and Converse sneakers were also strong.

As for first-quarter financials, Nike reported net income of $1.5 billion, or 93 cents per share, compared with $1.9 billion, or $1.16 per share, in the prior period. Sales were $12.7 billion, compared to $12.2 billion a year ago.

Analysts polled by FactSet had expected earnings of 92 cents a share on sales of $12.28 billion. Nike NKE stock,
it was down 9.3% after hours, but fell more than 10% at one point after the close.

Ahead of the report, analysts following Nike discounted the impact of a stronger U.S. dollar, the impact of China’s COVID-19 lockdown, as well as the effects of larger discounts on shoes and other equipment that have been out of stock for too long due to stockpiles. in the company’s supply chain. Back-to-school season and competition from brands like Adidas AG ADDYY,
It was also a focus for Wall Street.

Gross margin fell to 44.3% from 46.5% during the quarter. Nike executives said the decline was “primarily due to North America, which took action to liquidate excess inventory through Nike Direct discounts and wholesale market moves.”

Nike’s inventory was $9.7 billion, up 44% from the prior period, due to what executives described as “supply chain volatility partially offset by strong consumer demand during the quarter.”

In June, Nike said it expected “higher promotional activity” in the first quarter as it tries to sell late-arriving seasonal products following factory closures in Asia last year. However, for the full year ahead, management said at the time that it planned for “mid-single-digit price growth.”

Executives also said they plan to expand direct-to-consumer sales in their stores and online. The company over the years Foot Locker Inc. Trying to rely less on retail chains like FL.
for sale.

Nike shares are down 43% so far this year. By comparison, the S&P 500 index SPX,
decreased by about 24% during this period.

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