In its third-quarter trading update, NIKE reported a 14% increase in group revenues that beat analyst expectations, but earnings suffered as a result of higher markdowns, unfavourable changes in foreign exchange rates, and higher input and logistics costs.

Summary of results:

  • Q3 reported revenues were up 14% to US$12.4bn from $10.9bn a year earlier
  • Gross margin decreased 330 basis points to 43.3%
  • Net earnings fell 11% to $1.2bn from $1.4bn a year ago
  • Nike Direct sales were up 17% to $5.3bn, while Nike Brand Digital sales were up 20%
  • Double-digit sales growth in North America, EMEA and APLA. On a reported basis, China sales were down 8%
  • Revenues for Converse were up 8% to $612m led by double-digit growth across all channels in North America, partially offset by declines in Asia

Shifting excess inventory

Nike said inventories were up 16% on the prior year to $8.9bn but said it had made “tremendous” progress after reporting a 43% jump the previous quarter.

CEO John Donahoe told analysts on a call that the company’s “decisive actions” are enabling Nike to “navigate through the shifting dynamics with continued improved efficiency”.

“These results demonstrate yet again that we’re on track to hit our fiscal ’23 priorities of getting inventory in a healthy position and delivering revenue consistent with the financial goals we set earlier in the year.”

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CFO Michael Friend, added: “We’ve made tremendous progress on inventory. And two quarters ago, you’ll recall, we made clear set clear goals and decisive actions in response to changing conditions in the supply chain and the marketplace. And we’ve been able to leverage our brand momentum into and through the holiday season and continue to be able to sustain it into spring. I mentioned in my prepared remarks that within the financial parameters that we had set two quarters ago, we’re going to exit with even leaner inventory than we had anticipated given the momentum that we’re seeing.”

As a result of these actions, Nike is expecting fiscal 2023 gross margin to decline approximately 250 basis points at the low end of its previous guidance range. This reflects ongoing and accelerated actions to reduce inventory by year-end, elevated freight and logistics expenses, including higher supply chain network costs in North America and 100 basis points of foreign exchange headwinds. 

Nike increased prices this year across its portfolio in what it described as a “surgical approach”.

“As we look ahead to next year, we’re absolutely continually looking at the profitability of our product, we’re looking at inflationary costs in supply chain and also inflationary costs that are impacting the make of our product. And we will continue to focus on managing those levers together in order to try to drive profitable growth going forward.”

“Nike is more agile, responsive and resilient than before the pandemic with operational capabilities and an experienced team that enable us to create competitive separation. While we may continue to face heightened volatility, we are confident in our ability to drive sustainable and more profitable growth.”