Nike Q4 - Costs up

On Thursday evening Nike reported mixed results. Revenue was higher than expected, thanks to a strong rebound in Chinese sales, but profits were lower than hoped for and forward guidance was weak. Nike shares dropped by 2.7% on Friday, and are now down 7.1% for the year.

The athleisure giant had sales of $12.8 billion, up about 5% from $12.2 billion a year earlier. Chinese sales contributed $1.8 billion, up 16%. The greater China region is forecast to be a big growth driver for the company, so it was important to see it gather momentum.

Nike's inventory build-up due to Covid supply chain disruptions remains an issue. The current stock on hand is 23% higher than before the pandemic. To normalise inventory levels, the company is forced to sell stock at a discount. These discounts have led to lower gross profit margins, coupled with other contributing factors like increased selling costs and a stronger dollar.

The good news is that Nike direct-to-consumer sales are up 15% to $5.5 billion. Sales jumped 24% for Nike-owned stores and online revenue climbed 14%. Cutting out the middle-man means higher profits for Nike, and better control of the overall shopping experience.

Nike's performance this year has been very disappointing, but the issues facing the business mostly seem transitional. Importantly, the brand is still very desirable, a key requirement for long term shareholders.