Nike Inc 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 on Tuesday.
Global sales rose 17 percent to US$13.3 billion in the quarter that ended on 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 year-end performance was strong.
Photo: AFP
“Our holiday season momentum has continued through the first few weeks of December, despite operating in a largely promotional marketplace,” Nike chief financial officer Matt Friend said during the company’s conference call.
The shares rose 13 percent at 5:39pm in after-market trading in New York on Tuesday. The stock had declined 38 percent this year through Tuesday’s close.
While inventories jumped 43 percent from a year earlier, company executives said the number was inflated by abnormally low levels a year earlier, when COVID-19 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 percent 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, gross margin still surpassed analysts’ estimates.
Nike increased spending on marketing in an effort to lure in more shoppers. Demand-creation expenses were up 8 percent in the quarter to US$1.1 billion, mostly due to a spike in advertising.
Sales in China fell 3 percent 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-19 lockdowns. Executives said they were closely monitoring the situation as the government eases its “zero COVID” policy.
For the full fiscal year, which ends in the middle of next year, Nike sees revenue growth in the low teens on a currency-neutral basis. The company retained its projection that gross margin would fall 200 to 250 basis points.
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