Nike shares jump on leaner inventory, better margins outlook

By Savyata Mishra

(Reuters) -Nike shares climbed as much as 11% on Friday as the company further trimmed its inventory ahead of the all-important holiday shopping season and forecast improved second-quarter gross margin due to fewer discounts.

The world’s largest sportswear maker has focused on reducing its inventory, bringing it down by 10% to $8.7 billion in the first quarter from a year earlier, when stock levels surged on reduced orders from retailers as discretionary spending fell.

The company had turned to steep discounting to clear the excess inventory, which had weighed on its margins in the past few quarters. Its shares have declined about 19% so far in 2023, including Friday’s session moves.

Nike’s expectations for improving markdowns “is very encouraging, considering the overall challenging promotional environment for the footwear industry…,” said Drake MacFarlane, research analyst at M Science.

Rivals including Adidas and Puma have also struggled with soft U.S. demand and slower-than-expected recovery in China, where local brands are doubling down on efforts to take market share.

“Nike is showing it has the pricing power in the industry and that has competitive advantages,” said David Swartz, an analyst with Morningstar.

Nike on Thursday estimated a 100 basis point boost to current-quarter gross margin while maintaining its annual forecasts.

BMO analyst Simeon Siegel said investor sentiment had grown “too negative” owing to demand concerns in China and North America, leading to expectations of a forecast cut.

The company’s shares were trading higher at $96.09. The jump also lifted shares of Adidas, Puma and JD Sports between 5%-7%. Smaller rivals Dick’s Sporting and Foot Locker were up 2%-3%.

Still, demand in North America remained under pressure, leading Nike to post a slight miss on first-quarter revenue.

“We also worry about the US consumer getting materially worse, especially the lower end consumer, as gas prices rise, student loan payments resume, and excess savings dwindle,” said Piper Sandler analyst Abbie Zvejnieks.

(Reporting by Savyata Mishra in Bengaluru, Additional Reporting by Deborah Sophia; Editing by Sriraj Kalluvila)


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