While the S&P 500 has dropped 24% this year, Nike stock (NYSE:NKE) has fallen 47%. And Nike’s bad performance may be justified.
Although the company’s fiscal 2023 Q1 revenue and diluted earnings per share (EPS) beat Wall Street analyst expectations, quarterly revenues of $12.7 billion were only 3.6% higher. In fact, diluted EPS plummeted 19.8% from the previous year.
Nike and the Inventory Problems
The tremendous inventory accumulation may be Nike’s most pressing issue right now. Companies have had to contend with strained supply chains, increased freight prices, and longer shipment delays during the last 1.5 years. So management made the wise decision to purchase as much stuff as possible. However, the situation has improved considerably, and in Nike’s instance, stocks (NYSE:NKE) increased 44% year on year (and 65% in North America) in the most recent fiscal quarter.
Nike is applying more promotions and discounts than it wants to clear surplus inventory as rapidly as possible so that new stuff is on store shelves before the key Christmas shopping season. This explains why the gross margin declined from 46.5% in Q1 2022 to 44.3% in the most recent quarter.
In addition to the large inventory glut, Nike is struggling with a delayed recovery in China, which has traditionally been its fastest-growing market.
Nike Stock is a buy-and-hold company.
Despite short-term concerns, Nike stock (NYSE:NKE) seems to be a buy-and-hold investment. And my viewpoint here is based on one major component that has contributed to the company’s exceptional previous success: Nike’s great brand. According to Piper Sandler’s autumn 2022 Taking Stock With Teens poll, 60% of respondents chose Nike as their preferred footwear brand, while 31% chose Nike as their favorite clothing brand. That’s a promising sign for Nike’s future, particularly given that the poll participants were mostly under 16.
Furthermore, Nike offers a really unique product from the perspective of customers. Wearing Nike apparel is connected with a winning attitude, so much so that the company pays top-tier players millions of dollars in endorsement money to preserve this image. Nike is a worldwide renowned brand that isn’t going away anytime soon.
Given that the global garment industry is valued at a whopping $1.5 trillion, the firm will almost certainly continue to generate long-term development. Nike’s trailing-12-month revenues of $47.1 billion constitute a negligible market share today.
The next quarters might be challenging as the economy continues to deteriorate. However, Nike’s long-term prospects remain promising. As a result, the stock is an excellent investment for $1,000.
Featured Image – Unsplash © takeshi2
Author Okoro Chinedu 
