Nike eyes “healthy, full price growth” as inventory woes dissipate

Having surpassed $51 billion in annual revenues and normalized its inventory level through markdowns and order cancellations, Nike says it’s better positioned than smaller rivals as it commences FY24 with a strategy to grow total revenues by mid-single digits, expand reported gross margin by 140 to 160 basis points despite rising labor and material costs, and generate modest improvement in price cutting. While there is concern about the macro environment and the impact of inflation on consumers, healthy, full-price growth is a primary objective. 

Inventory “ahead of plan”

The group ended FY23 with a flat year-over-year inventory level of $8.45 billion, with the number of units in the wholesale marketplace down and the North America and Greater China regions both posting declines in the high-single digits. Nike called the current inventory position “ahead of plan” and better than that of its competitors. 

Net income fell by 28 percent to $1,031 million from $1,439 million in the final period that ended May 31, as revenues increased by 5 percent to $12,825 million. Nike Direct sales rose 18 on a constant-currency basis, with Nike own-store sales up 24 percent and digital sales increasing by 14 percent.

Demand creation expense rose by 3 percent to more than 1.09 billion. But the Q4 margin slid 140 basis points to 43.6 percent from 45.0 percent, and diluted EPS missed a consensus estimate of $0.67 a share by a penny. The result sent Nike shares down more than 4.2 percent in after-market trading last evening. 

China resurgent, Europe direct & digitally solid, North America rather quiet

Regionally, the EMEA produced 7 percent constant-currency growth in the final period to $3.35 billion, with footwear up 11 percent to $2.17 billion but apparel flat at $1.04 billion. Nike Direct sales increased by 28 percent, and digital sales improved by 24 percent, with higher traffic driven by both performance and casual offerings. Ebit declined 13 percent year-over-year to $781 million. 

Greater China sales, bolstered by double-digit growth in both running and basketball, rose by 25 percent to $1.81 billion, with an apparel sales increase of 36 percent to $438 million, outpacing a 22 percent gain in footwear sales to $1.34 billion. Nike Direct sales were 19 percent on increased store traffic, but digital sales in Greater China fell by 12 percent. The region’s quarterly Ebit increased by 70 percent to $529 million as it experienced its highest level of full-price selling in two years. 

In the home North American market, final period sales rose by 5 percent to $5.35 billion, with footwear up by 6 percent to $3.8 billion as apparel revenues slipped by 2 percent to $1.35 billion. Nike Direct sales increased by 15 percent; digital sales gained 17 percent. But wholesale revenues fell by 3 percent. In APLA, Q4 revenues rose by 6 percent on a constant-currency basis to $1.7 billion, with footwear up 7 percent to $1.23 billion and apparel revenues increasing by 1 percent to $409 million as the region shifted to a distributor model. 

Revenues up 10% in FY23

For FY23, Nike generated $7 billion more in revenue on a constant currency basis and $3 billion more in its home North American market as both units and average selling prices (ASPs) rose despite promotional landscapes and excessive inventory in key geographies. Annual net income declined by 16 percent to $5,070 million from $6,046 million despite a 10 percent revenue growth to more than $51.2 million. Nike Direct sales rose by 20 percent on a constant-currency basis which included a 24 percent improvement from digital and a 14 percent gain from stores. Annual gross margin slipped by 250 basis points to 43.5 percent from 46.0 percent. Annual demand creation rose by 5 percent to surpass $4 billion. EMEA full-year revenues increased by 21 percent on a constant-currency basis to $13.42 billion, with footwear sales stepping 25 percent higher to $8.26 billion and apparel sales rising 14 percent to $4.57 billion. 

The group, excited about sales prospects for the upcoming Women’s World Cup, experienced 25 percent growth in global football revenues in FY23, with women’s and children’s product sales increasing at a higher rate. Brand Jordan, on track to become the second-largest footwear brand in North America, experienced 35 percent constant-currency sales growth in FY23 to $6.59 billion. The Jordan results were helped by growth in women’s, children’s, and apparel. 

Nike, which calls the running category “a competitive battlefield,” realized 10 percent sales growth from the footwear segment during FY23 as it moved forward with a strategy to “re-invigorate” its assortments ahead of the Paris Olympics in 2024 with performance, everyday run and lifestyle products.