Retail and consumers

Nike says better profitability is on the horizon as net income edges down in Q1

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Dive Brief:

  • Revenue at Nike grew 2% year over year in the first quarter, with digital also up 2% and Nike Direct revenues up 6%, according to a company press release. Wholesale revenue was flat to last year.
  • The athletics retailer decreased its inventory load by 10% in the quarter, and Chief Financial Officer Matt Friend said on a call with analysts Thursday that total inventory units were also down double digits.
  • By category, footwear grew 4% in the quarter, while apparel was down 1% and equipment was up 9%. Net income fell slightly year over year to $1.45 billion.

Dive Insight:

While overall revenue grew at Nike in Q1, sales in its largest region fell. North America revenue was down 1.6% to $5.4 billion in the quarter, though every other region grew.

“This wasn’t the cleanest quarter we’ve seen, but given the tough macro environment and some of the marketplace inventory challenges (admittedly self-inflicted), it was better than many investors thought we’d see,” Wedbush analyst Tom Nikic said in emailed comments. “Ultimately, we see brighter days ahead.”

As it shifts to a digital-led strategy, Friend said Nike’s DTC Nike Direct business would continue to drive its growth this year, and that the company is on its way to better profitability. The company is lowering online fulfillment costs by investing in regional centers closer to where customers are and reducing “split shipments” so that customers don’t get two boxes for the same order.

“While the ultimate landing spot of digital and direct isn’t as clear, we do believe we’re going to be a more direct and a more digital company and a more profitable company,” Friend said.

The mix of wholesale and DTC at Nike has been a topic of interest for years, as the company pivoted away from certain partners in favor of its own channels. Lately, the retailer has stressed the importance of both wholesale and DTC, and has reforged ties with companies like Macy’s and DSW.

“Wholesale plays a really important role for us to get the breadth and depth of access to consumers,” CEO John Donahoe said, saying there was “a lot of growth opportunity” with its strategic wholesale partners.

At the same time, the executive said Nike’s own store concepts, such as Nike Rise and Nike Well Collective (a renaming of its Nike Live store format alongside a focus on more holistic fitness) are both doing “quite well” and help to augment its other channels.


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