Nike Shares Fall As Overstocked Inventory Weighs on Earnings
Stocks in North America tumbled the most since the early days of the pandemic
Stocks often rise and fall slowly but on Monday, Nike shares in North America tumbled the most in more than five years. This sell-off is a reminder of the vulnerability of companies that rely on consumer spending for their business. Although the company has a strong financial foundation, it is not immune to a sudden drop in demand. The company is not the only one suffering from a decline in sales.
As the number of confirmed cases rises, investors are worried about possible restrictions on the export of Covid. This could affect the supply chains and economy of some countries. The Chinese government is considering a lockdown in some areas and has already implemented mass testing in one district of the city. In London, the leading FTSE 100 index tumbled on the news, with commodity firms leading the decline. Other European stock markets also plunged.
Nike’s revenues were up 4 percent
The athletic apparel maker reported that its revenues were up 4 percent in the first quarter, outpacing Wall Street’s expectations. Nike’s revenue growth was helped by stronger demand in China, Western Europe, and emerging markets. The company topped Street estimates for revenue, while keeping costs low.
Nike’s revenues were up 4 percent in the fourth quarter, including a jump in Western European sales. In its fiscal year, revenues rose 6 percent to $34.4 billion. The company also saw sales in wholesale channels increase by 5 percent. Meanwhile, direct-to-consumer sales, including those from e-commerce channels, increased by 18 percent.
Converse’s revenues were up 8 percent
Converse’s revenue growth is not a typical story. In 2003, the company was relatively small, with annual revenues of $205 million. Today, it is one of the largest athletic footwear and apparel companies in the world. Converse is a subsidiary of Nike, and its business focuses on designing athletic lifestyle footwear and apparel.
Converse’s revenue growth in the most recent quarter was a bit more modest than the company reported previously. The company saw a 1 percent decrease in reported revenues, despite a nearly eight percent increase on a currency-neutral basis. Converse also reported an increase in profits of a few million dollars. It also reported that its sales at its NIKE-owned stores increased by 10 percent.
Inventories for Nike were up 44 percent
Nike has suffered from an overstocked inventory problem, which weighed down on the company’s first-quarter earnings. The company’s inventory rose 44% from a year ago, which it blames on supply chain problems. It also faced the headwind of a rising dollar and a drop in demand outside North America. However, executives have pointed to the improvement in shipping times and believe China will be a major growth market for the company in the future.
Nike’s inventory spike is hurting the company’s margins. The overstocking will cut into gross margin by about 2% to 2%, with most of the pressure coming during the current quarter. The surge in inventory will also be due to early holiday orders and late deliveries. Additionally, factory closures in Indonesia and Vietnam will add to the inventory buildup, lowering the company’s margins.