Nike sneakers fuel sales beat, excess apparel stocks still a drag

(C) Reuters. FILE PHOTO: Nike shoes are seen on display in New York, U.S., March 18, 2019. REUTERS/Shannon Stapleton

By Ananya Mariam Rajesh

(Reuters) -Nike raised its full-year revenue outlook on Tuesday after reporting quarterly results that beat estimates, but warned of margin pressures as it continues to get rid of excess inventory through heavy discounts.

The company saw strong demand for its sneakers, including classic styles such as Jordan Retro and newer franchise launches such as LeBron 20, that helped grow its market share.

Nike (NYSE:NKE) said its apparel inventory fell in the third quarter and expects to end fiscal 2023 with “healthy” inventory levels.

Rival Adidas (OTC:ADDYY) is still struggling from its split with the artist formerly known as Kanye West and the German company is expected to post its first annual loss in three decades this year.

Nike’s shares fell 2% in extended trading on Tuesday after the company said it expects 2023 gross margin to decline about 250 basis points, at the low end of its previous forecast range.

The company’s margins remain pressured by a strong U.S. dollar, higher freight costs and Nike’s efforts to offer steeper discounts in an attempt to get rid of excess inventory, Chief Financial Officer Matthew Friend said.

Nike is in a much better position with inventories than it was in the past six months, Jessica Ramirez, senior analyst at Jane Hali and Associates said.

Sales in Greater China fell about 8% even as the country eased pandemic-related restrictions, which is expected to benefit the company in the near term.

Nike’s recovery in China looks a lot more better than Adidas which has been “falling apart” in the country, Morningstar analyst David Swartz said.

Nike now expects reported revenue for the full year to increase in the high-single-digit range, compared with its previous forecast of growth in the mid single digits.

In the fourth quarter, the company expects flat to low-single-digit revenue growth, compared with estimates of a 2.42% rise, according to IBES data from Refinitiv.

Nike posted revenue of $12.39 billion in the third quarter beating estimates of $11.47 billion and reported a profit of 79 cents per share above estimates of 55 cents.