Nike announced on Wednesday that it had had a strong quarter of the fiscal year despite supply chain problems and a drop in revenue from Greater China, its third-largest market in terms of revenue.
The shares of the company dropped over 10% during trading after hours.
Similar to other retailers, Nike is also facing problems with its supply chain, including a rise in shipping costs and the time to ship over the past few months. The company also reported that its inventory levels increased in the quarter compared with the previous year.
Here’s what Nike achieved in its first fiscal quarter as compared to what Wall Street was anticipating, according to a poll of analysts conducted by Refinitiv:
- Earnings per share: 93 cents vs 92 cents expected
- Revenues: $12.69 billion vs $12.27 billion, which is expected
Nike reported net earnings during the three months ending August. 31 dropped 22 per cent to $1.5 billion or 93 cents per share, compared to $1.87 billion in the same period, or $1.18 for each share in the same period a year ago.
The company’s revenue increased by 4% to $12.7 billion, compared to $12.2 billion in the previous year.
In recent months, Nike has been shifting its strategy and intending to sell its sneakers and other items directly to consumers and cut back on the merchandise offered through wholesale partners like Foot Locker. The company announced on Thursday its direct sales increased by eight per cent up to $5.1 billion, while sales for its digital brand grew by 16 per cent. On the other hand, the wholesale business operations increased by 1 per cent.
In the first quarter of its fiscal year, Nike said its inventory increased by 44 per cent to $9.7 billion on its balance sheet from the same quarter last year. The company claimed that the increase was due to supply chain issues and was partially compensated by strong consumer demand.
The total sales of Greater China were down 16 per cent to $1.7 billion, which is compared to close to $2 billion prior. The company has had to deal with disruptions within its area, as Covid lockdowns have harmed its operations. Nike announced that in the last quarter, it expected problems related to Greater China to weigh on its business.
In addition, sales totals in North America, Nike’s largest market, increased by 13 per cent to $5.5 billion in the first quarter of a fiscal year in comparison to $4.9 billion during the same period in the previous year. Nike has repeatedly stated that demand from consumers, particularly within the U.S. market, hasn’t diminished despite the rise in inflation.