stockmarketwalk Nike warned investors in its latest earnings results that overstocked inventories and the aggressive steps it is taking to reduce them weigh on profits.
The overall inventories rose 44% to $9.7 billion as supply chain issues increased the volume of goods in transit.
According to Nike’s executives, alone in North America the inventory is up 65% compared to last year, reflecting a combination of late delivers and early holiday orders that are expected to arrive earlier than planned.
Following the latest earnings results, Nike reported first-quarter revenue of $12.69 billion, up 4% year over year, exceeding analysts’ estimates. The company’s adjusted earnings per share of $0.93 slightly beat analysts’ expectations but down 22% compared to the same quarter of 2021.
The strengthening U.S. dollar also proved to be a laggard for Nike in the first quarter, and it could also go forward. Exchange rate movements reduced the sales by 16% in Europe and by 12% in Asia and Latin America. The company only recorded a growth of 1% in Europe, while Asia-Pacific and Latin America stagnated.
Nike’s sales fell 16% to about $1.7 billion year over year in Greater China, which is the company’s highest-margin region. The company faces disruptions in the region where the Covid shutdowns affected its business operations.
The inventory issues are expected to normalize by the end of the current fiscal quarter, but investors seem scared of industry-wide inventory buildup and increased discounts. Greater China is Nike’s third largest market by revenue.
In North America, Nike’s largest market, total sales rose 13% to $5.5 billion in the fiscal first quarter, compared to $4.9 billion for the same period last year.
Nike shares fell sharply after the market closed on Friday, losing more than 50% of their value so far in 2022.
Nike President and CEO John Donahoe said
That said, we don’t have any crystal ball around the external factors, whether it’s FX, whether it’s inflation, whether it’s the impact of energy prices on consumer spending.
Key takeaways
- Overall inventories was up 44% to $9.7 billion due to supply chain issues
- Exchange rate movements weigh on earnings
- First fiscal quarter revenue was up 4% to $12.69 billion, beating estimates.
