Nike (NKE) Stock Tanks 9% on Rising Inventories and Weak Margins in Q1 2023

UTC by Bhushan Akolkar · 3 min read
Nike (NKE) Stock Tanks 9% on Rising Inventories and Weak Margins in Q1 2023
Photo: Unsplash

Nike has been dealing with major inventory challenges amid supply chain issues, Covid-19 shutdowns in China, and waning consumers demand in China.

On Thursday,’s trading session, Nike Inc (NYSE: NKE) came under selling ending 3.5% down amid a broader market correction. However, the sell-off intensified in the after-market hours as the NKE stock price plunged another 9.36% amid concerns of rising inventories and weakening margins.

Consumer companies are facing the heat with inflationary pressure eating into their margins. Although despite the supply chain challenges, Nike reported a strong fiscal quarter. But the challenges ahead have been mounting up fast.

Firstly, Nike has been facing declining sales in china, its third-biggest market by revenue. This is the same problem that Apple too has been facing post the launch of its iPhone 14 lineup. The Chinese consumer demand has been on downfall as the economy faces tough challenges with the real estate crisis unfolding in Asia’s largest economy.

Also, Covid-19-related store closures in China have been major impacting the supply chain for these companies. Adding to the pain is the overstocked inventory by Nike. In recent quarters, Nike also faced supply chain headwinds with the rise in both shipping costs as well as shipping times.

During the first fiscal quarter of the year, Nike announced its earnings per share at 93 cents vs. 92 cents expected. The company also announced revenue of $12.69 billion against the expected $12.27 billion.

Nike’s Inventory Problem that Affects NKE Stock

With the supply chain issues rising, the delivery times rose while the consumer demand was also ticking higher in the first half of 2022. As a result, retailers responded by order earlier than the usual period. But during transit, the shipping times also began to improve drastically. This led to the swelling of inventories as per Nike CFO Matthew Friend.

However, at the same time, the average consumer is facing greater economic uncertainty. “As a result, we face a new degree of complexity,” said Friend. The Nike CEO also added that they would be clearing the inventory for specific pockets of “seasonally late products”.

Nike’s inventory in North America has surged by 65% in comparison to last year. This is the mixed result of “late deliveries for the past two seasons and early holiday orders that are now scheduled to arrive earlier than planned”. Friend added:

“We’ve decided to take that inventory and more aggressively liquidate it so that we can put the newest and best inventory in front of the consumer in the right locations.”

For the three-month period ending August 31, Nike reported a 22% drop in net income, to $1.5 billion. On Thursday, Nike said that during the second quarter, it expects revenue to grow in the low double digits. It added that the consumer demand still remains strong.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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