The sporting goods manufacturer Nike had a cautious start to the new financial year. A decline in the domestic market slowed down development. However, the US group made greater progress in reducing excess inventory than expected and the gross margin, which was widely noticed on the financial markets, was not as bad as expected. The stock therefore jumped in after-hours US trading on Thursday evening. This also boosted competitors Adidas and Puma, whose shares rose significantly on Friday morning.
Nike made further progress in reducing its inventories in the fiscal quarter that ended at the end of August; they fell by 10 percent to 8.7 billion US dollars, as the company announced on Thursday evening after the US stock market closed. CFO Matt Friend was satisfied with the inventory level in a subsequent analyst conference.
The sporting goods industry has been groaning for quarters because of too much product. In view of supply chain problems and rising raw material and material costs, industry giants such as Nike, Adidas and Puma have accumulated high inventories over the past year, which they can now only get rid of with lower prices in a subdued consumer environment. This increases competitive pressure in the industry and reduces profitability.
The gross margin fell only slightly by 0.1 percentage points to 44.2 percent in the first quarter. This was significantly better than analysts had previously expected. While the bottom line was one percent less profit at $1.45 billion, earnings per share rose by one percent to $0.94 and were also above estimates.
US business slows down Nike
Sales increased by two percent to $12.94 billion. A decline in the domestic market slowed down business. US revenue fell by two percent year-on-year to just over $5.4 billion. The performance of Nike’s US business was seen as an important indicator of US consumer sentiment. With high inflation and expensive fuel, savings are being made on non-essential expenses – and sports shoes and training clothing like in the case of Nike are just a few such items.
In other regions, however, there were increases. In Europe, the Middle East and Africa, Nike sales rose eight percent to $3.6 billion. In the Chinese region, however, developments cooled down; revenues rose by five percent to $1.7 billion and, like US sales, were below expectations. Nevertheless, Nike is gaining market share in China, management said.
Nike announced slight overall growth for the second quarter. The gross margin is also expected to grow again after recent declines. The world’s largest sporting goods manufacturer confirmed its annual forecast. Sales are expected to increase in the mid-single-digit percentage range in 2023/24 and are therefore somewhat weaker than in the previous year, in which sales rose by ten percent to $51.2 billion. The gross margin is expected to improve by up to 1.6 percentage points, following a decline of 2.5 points to 43.5 percent in the previous year.
Nike shares climbed almost eight percent in pre-market trading in New York on Friday compared to the previous day’s closing price. This means that they should significantly reduce their previous annual loss, as so far the shares have fallen by more than 23 percent over the course of the year.
Investors are likely to react with great relief to the fact that the US sporting goods manufacturer’s first quarter was nowhere near as bad as feared, Jefferies analyst James Grzinic noted in an industry study available on Friday. This should also benefit the shares of its European competitors. Gross margin and continued progress on inventory levels provide positive guidance for Adidas and Puma’s profit prospects in the coming quarters, it said.
The shares of the European competitors were able to benefit at least in the morning: Adidas rose by 5.9 percent, Puma by 5.7 percent. Puma will present its third quarter figures at the end of October, Adidas will follow in November.(dpa)