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Shares of Nike (NKE, $83.12) were down 12% after the sneaker and apparel company reported overstocked inventories and outlined the radical steps it needs to take to lower them. To caveat this, it said it had a solid first fiscal quarter despite supply chain issues and declining sales in Greater China, its third biggest market by revenue. Revenue was up 4% to $12.7B, compared with $12.2B a year earlier.
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Nike executives said its inventory in North America alone grew 65% compared to last year, reflecting a combination of late deliveries for the past two seasons and early holiday orders that are now scheduled to arrive earlier than planned. That has resulted in having a few seasons’ worth of merchandise available at the same time.
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Recently, Nike has been shifting its strategy and looking to sell its sneakers and other merchandise directly to customers and scale back on what is sold by wholesale partners like Foot Locker. The company said on Thursday its direct sales grew by 8% to $5.1B, and sales for its digital brand rose 16%.
Why it matters
Many retailers have felt the full pain of a supply chain crunch in 2022, and Nike has been no exception – overstocked inventories were driven by elevated in-transit times from ongoing uncertainty within the supply chain. Further, the company took somewhat drastic measures to address excess inventory in North America, such as Nike Direct markdowns and even wholesale actions.