Nike shares fall as analysts report growing inventory problems

Nike stock fell more than 9% pre-market on Friday, with analysts pointing to rising inventories at the sportswear maker.

Thursday, Nike NKE,
-12.81%
announced an “optimistic” first fiscal quarter ending August 31, according to an analyst – revenue rose 4% to $12.7 billion, compared to the same period last year. Net profit for the three months fell 22% to $1.5 billion from $1.87 billion a year ago.

But Nike, along with other retailers, have faced supply chain pressures due to increased shipping costs and delays to North America, resulting from factory closures across the country. Vietnam and Indonesia last summer. Retailers started ordering earlier than usual and once shipping times improved, Nike saw its inventory increase.

The company also reported lower sales in Greater China, its third-largest market.

“We are facing a new level of complexity,” Nike chief financial officer Matthew Friend told analysts on Thursday.

He added that Nike will “more aggressively” liquidate inventory accumulated over several seasons.

Although Cédric Rossi of Bryan, Garnier & Co said Nike gave a “reassuring” sales outlook in the second quarter and fiscal year 2023, it was overshadowed by issues of excess inventory and erosion of sales. margins, which raised eyebrows among investors for a few months.

“Resolving the dilemma between top line growth and margin protection is more complex than ever in an environment of inflation and falling consumer spending,” he said.

JP Morgan analysts rated Nike overweight due to its “brand momentum” providing global protection against external macro volatility, but cut its price target to $120 from $130.

“We see this, combined with continued gross margin expansion (increased full price sales, favorable terms [direct-to-consumer] co-ed), resulting in sustained growth in earnings per share for mid-to-teens over multiple years,” said the team led by Matthew R. Boss.

Piral Dadhania, head of the analyst team at RBC Capital Markets, said Nike’s recovery would be best proven outside North America – mainly in China – and lowered earnings per share expectations. the company for FY23 by 21% and the price target at $115 from $125.

“We maintain our outperformance rating on strong revenue growth and potential recovery from China,” they said.

Adidas shares fall

Adidas’ ADS, main competitor,
-4.14%
the stock fell 4% on Friday following Nike’s earnings report.

The brand also intends to improve its sales in China, after widespread shutdowns in the country are dampening demand and a change in its chief operating officer in China.

Cédric Lecasble, an analyst at Stifel, said he expects Adidas to reiterate its lower outlook and its new CEO to help the company.

“The change of CEO – expected in FY23 without further details – will be at the heart of the matter. A strong track record in branding and marketing will likely be the toughest requirements,” he said.