Nike Inc. reported quarterly sales that beat Wall Street’s expectations as the sportswear brand worked down its excess inventory, but profitability missed estimates amid markdowns and high freight and material costs.
Global revenue rose 14% to $12.4 billion in the quarter ended Feb. 28. That was above analysts’ average estimate of $11.5 billion. Gross margin was 43.3%, below the 43.7% estimate.
Chief Executive Officer John Donahoe and his team have made progress in dealing with the glut that has forced the company to discount merchandise, hurting profit margins. Inventories were up 16% from the year prior after the company reported a 43% jump the previous quarter.
Even so, the company cited “higher markdowns to liquidate inventory” as hurting gross margin, as well as higher costs for its materials and freight. Nike sees gross margin down 2.5 percentage points in its current fiscal year, versus its prior outlook for a decline in a range of 2 to 2.5 percentage points.
In a call with investors, Chief Financial Officer Matt Friend said the company expects pressures on profitability to ease in the next fiscal year, which begins around June.
The company is also “closely monitoring the building pressure on consumer confidence,” Friend said. Nike sees revenue growing this fiscal year by a high-single-digit percentage, up from its prior guidance of mid-single-digit expansion.
Nike shares were down 1.7% in premarket trading at 8:20 a.m. Wednesday in New York. The stock had been up about 7% this year until Tuesday’s close. European peers Adidas AG and Puma SE were also trading lower.
Weakness in China persisted, though Nike’s troubles there may lessen as the nation’s reopening reaches full swing. Sales rose across all regions except for greater China, where revenue fell almost 8%.
©2023 Bloomberg L.P.
