Nike's Heavy Discounts Take a Bite Out of Profits

Nike's latest earnings blew past Wall Street expectations, despite excess inventory taking a bite out of profits and disappointing sales in China. 

The sneaker giant's inventories were up 16 percent compared to a year ago. The glut required the company to heavily mark down its products and lose out on profits.  

On the positive side, Nike touted the success of its direct-to-consumer strategy. 

“NIKE’s strong results in the third quarter offer continued proof of the success of our Consumer Direct Acceleration strategy,” said CEO John Donahoe in a press release. 

The strategy launched in 2020 involves investing more in e-commerce technology and creating more opportunities for direct-to-consumer sales rather than through retailers.  

“Fueled by compelling product innovation, deep relationships with consumers and a digital advantage that fuels brand momentum, our proven playbook allows us to navigate volatility as we create value and drive long-term growth," Donahoe said.  

Gross margins were nonetheless down 43.3 percent for the quarter, even as the company exceeded expectations on earnings per share and revenue. Revenues were up 14 percent in the quarter. 

“NIKE’s brand distinction and strong execution continue to create separation in the marketplace," said Chief Financial Officer Matthew Friend. "We have made tremendous progress on inventory as we position NIKE for sustainable and more profitable growth."

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