Nike Inc. reported earnings and sales that topped expectations, but shares declined in after-hours trading as margins took a hit while freight costs, merchandise markdowns and the effects of a tougher foreign-exchange backdrop piled up.
The athletic-gear giant reported first quarter net income of $1.5 billion, or 93 cents a share, compared to $1.9 billion, or $1.16 a share, in the year-earlier period. Sales were at $12.7 billion a year ago, compared to $12.2 billion a year ago.
Analysts said by FactSet that the company's earnings would be 92 cents a share on sales of $12.28 billion. After hours, the shares of Nike NKE fell 4.5%, as concerns about margins and inventory weighed on the company.
Prior to the report, analysts had zeroed in on the impact of the stronger U.S. dollar, the impact of China's COVID lockdowns, as well as the effects of larger discounts to sell shoes and other gear that sat around for too long due to backups in the company's supply chain. Wall Street was attracted to the back-to- school season, competition with the likes of Adidas AG ADDYY.
Gross margins fell to 44.3% from 46.5%. North America took measures to liquidate excess inventory through Nike Direct markdowns and wholesale marketplace actions, which led to the decrease, according to Nike executives. The inventory of Nike was $9.7bn, a 44% increase from the year-earlier period, due to ongoing supply-chain volatility, partially offset by strong consumer demand during the quarter. In June, Nike said it expects higher promotional activity in the first quarter, as it tries to sell seasonal items that arrived late, following factory closures last year in Asia, where most of its footwear is made. Management said it was planning to increase mid-single digit price increases for the full year ahead. The company is planning to expand sales that go directly to consumers, via its own stores and online. The company has tried not to rely on retail chains like Foot Locker Inc. FL for sales over the years.
So far this year, the shares of Nike have fallen 43%. The S&P 500 index SPX is down around 24% over that time.