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Elevated Logistics Costs & Higher Markdowns Hit Nike’s Margins in First Quarter

Shares for Nike Inc. were down 5% in after-market trading on Thursday after the athletic giant reported a 22% decrease in net income of $1.5 billion in the first fiscal quarter of 2023. This was after the stock closed the trading day down 3.41%.

The Beaverton, Ore.-based company said in its earnings release on Thursday that elevated freight and logistics costs, as well as higher markdowns in its Nike Direct business, were to blame for the declines, hitting its gross margin by 220 basis points or 44.3%.

Nike added that the overall decrease in margins was primarily driven by North America, which took measures to liquidate excess inventory through Nike Direct markdowns and wholesale marketplace actions.

Overall though, Nike reported first quarter revenues of $12.7 billion, up 4% compared to the prior year and up 10% on a currency-neutral basis. Revenues for the Nike Brand were $12 billion, up 4% on a reported basis and up 10% on a currency-neutral basis, led by double-digit currency-neutral growth in North America, EMEA and APLA, partially offset by declines in Greater China.

At Converse, revenues were $643 million, up 2% on a reported basis and up 8% on a currency-neutral basis, led by double-digit growth in North America and Europe, partially offset by declines in Asia.

Nike Direct sales were $5.1 billion, up 8% on a reported basis and up 14% on a currency-neutral basis. And Nike Brand Digital business fueled growth, increasing by 23%, driven by double-digit growth in EMEA, North America and APLA, partially offset by declines in Greater China.

Wholesale revenues increased 1% on a reported basis and were up 8% on a currency-neutral basis, with growth due to improved levels of available supply of inventory for partners.

As for inventory, Nike said it ended the quarter up 44% to $9.7 billion, driven by elevated in-transit inventories from ongoing supply chain volatility, partially offset by strong consumer demand during the quarter.

“Our strong start to fiscal year 2023 highlights the depth and breadth of Nike’s global portfolio, as we continue to manage through volatility,” John Donahoe, president and CEO of Nike Inc., said in a statement. “Our competitive advantages, including the strength of our brand, deep consumer connections and pipeline of innovative product, continue to prove that our strategy is working. We expect our unrelenting focus on better serving the consumer to continue to fuel growth and create value like only Nike can.”

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