Nike Stock Falls After Profit Margin Warning from Inventory Bloat

Nike stock

Nike stock experienced a steep decline on Friday as the firm warned that “greater markdowns” will be required to clear its bloated worldwide inventory. This puts pressure on profit margins for the world’s most significant sports equipment manufacturer. 

Nike Stock Revenue

Nike announced that its inventories increased by 44% from the previous year to $9.7 billion, with an unprecedented 65% surge in its key North American market. The company posted a bottom line of 93 cents per share on revenues of $12.7 billion, surpassing Wall Street analysts’ expectations for its first quarter earnings by one penny. 

According to Nike Inc. (NYSE:NKE), moving the goods will probably result in a decrease in margins of between 2% and 2.5%, with most of the impact occurring during the current quarter. Nike has stated that its annual sales prediction will likely be reduced by $4 billion because of strengthening of the United States dollar, which earlier this week reached a new 20-year high compared to its peers in the global currency market. 

The CFO of the company, Matthew Friend, explained to investors on a conference call late on Thursday that the increase in inventory “reflects the combination of late delivery for the past two seasons plus early holiday orders that are now set to arrive earlier than planned and a prior year that was impacted by factory closures in Vietnam and Indonesia.” The friend made these remarks to the investors. 

“As a consequence, we are taking urgent action to reduce excess inventory, concentrating our efforts on particular pockets of seasonally late products, most prominently in the clothes category,” he continued. “While we anticipate this will have a temporary impact on gross margins for the current fiscal year, we believe the advantage of clearing marketplace capacity to synchronize seasonally relevant product, storytelling, and retail experiences for the consumer will far outweigh the expense of doing so,” 

In pre-market trading, Nike stocks were tagged 11.4% lower, which indicated an opening bell price of $84.48 per. This move will increase the stock’s year-to-date drop to approximately 49.3% if it continues. 

An analyst at KeyBanc Capital Markets named Noah Zatzkin, who has a sector weight recommendation on the company and pointed out that China’s persistent decline remains an issue, noticed that revenues fell by 16.5% to $1.66 billion in the most recent quarter. 

“Greater China is an important business driver, accounting for approximately 17% of Nike Brand revenue,” said Zatzkin. “While we see long-term growth opportunity, we think a substantial improvement in trends could remain elusive in the near term.” [Citation needed] “While we see long-term growth opportunity, we think the substantial improvement in trends could remain elusive in the near term.” 

“However, we remain cautious on the timing for a return to robust growth,” he added. “Encouragingly, Nike stock indicated that 1Q top-line trends were ahead of plan (-16% y/y) and that it expects to be in a solid inventory position in the region by the end of 2Q.”

Featured Image: Megapixl @Shanliangdigital

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