Nike (NYSE: NKE) shares were down more than 11% following the company's fiscal Q1 earnings which showed a big miss on the bottom line as the company deals with excess inventory. This is a direct result of ports and shipping lanes becoming unclogged which has left retailers with excess inventory.
The company did manage to beat the top line. It's also continuing to increase direct-to-consumer and e-commerce sales which come with higher margins and the opportunity to increase revenue retention. YTD, Nike shares are down 42% and more than 55% off their all-time highs from late last year. For bulls who continue to believe in the company's long-term fortunes, these types of drawdowns have been attractive entry points in the past.
Inside the Numbers
In its fiscal Q1, Nike reported $0.93 per share in earnings which was a 22% decline from last year's $1.18 per share. It also just missed analysts' expectations of $0.94 per share in earnings. Revenue was up 4% to $12.7 billion, higher than analysts' consensus estimates of $12.5 billion in revenue.
Direct sales were up 8% to $5.1 billion and online sales were up 16%. In contrast, Nike's wholesale business sales were up only 1%.
Shares sold off due to the company's higher-than-expected levels of inventory and discounting plans to unload these items. Nike had increased its order size and the lag time to account for supply chain and transportation issues. However, this resulted in a problem this quarter as supply chain issues and shipment times dramatically improved, leaving the company with excess inventory,
Compared to last year, inventory levels are up 65% due to a combination of late deliveries for summer and spring clothes, while holiday inventory is arriving earlier than expected. Nike plans to discount and liquidate this inventory until it gets to a healthier equilibrium.
Another challenge for the company is weakness in China as sales were down 16%. North American sales were up 13% to $5.5 billion, an indication that demand in North America remains strong despite recent challenges for the consumer.
Nike didn't issue any firm guidance, but it sees revenue growth in the low double-digits despite some headwinds from lingering supply chain issues and a strong U.S. dollar.