Nike is apparently making faster progress in reducing inventories than its German competitors Adidas and Puma. At the end of the third quarter, which ended in February, the American sporting goods world market leader still had goods worth 8.9 billion dollars in stock. That’s 16 percent more than a year earlier, as Nike announced. However, Adidas and Puma were each sitting on 50 percent higher inventories at the end of the year after sports shoes and casual wear were scarce in the Corona crisis and retailers ordered more than they could sell.
Things are going badly at Adidas right now. The new CEO Björn Gulden has some problems. After separating from the controversial US rapper Kanye West because of his anti-Semitic and racist outbursts, the Germans are now sitting on a virtually unsellable mountain of shoes worth 500 million euros. It is currently being checked whether the shoes can be shredded and then recycled. Adidas could turn a loss this year for the first time in 30 years. And besides, like Nike and Puma, there are also full stocks at Adidas.
All providers are now trying to get rid of the goods with high discounts. While that’s nice for customers who have to pay less, it squeezes gross margins and thus profits: At Nike, the margin fell significantly in the past quarter of 2022/23 – also because of the strong dollar and still higher freight costs. For the full year, which then ends in May, the company, which is headquartered in Beaverton, Oregon, expects its margins to fall by 2.5 percentage points. This information pushed Nike shares down two percent in after-hours trading. Adidas and Puma shares also fell slightly on Wednesday.
There have also been significant problems in China recently
It didn’t help that Nike CFO Matt Friend is now counting on higher sales growth and Nike’s figures should remain stable, at least in the current quarter. After all: At the beginning of the new fiscal year 2023/24, inventories should be at a “healthy” level again, said Friend. Adidas and Puma also expect things to normalize by the middle of the year.
In China in particular, Nike is currently doing significantly better than the competition: In the third quarter, the sporting goods manufacturer’s sales there were only eight percent below the previous year after the government in Beijing abruptly ended the lockdowns and the Chinese were able to go shopping again. Without currency effects, the sign would even have been positive.
Overall, Nike exceeded analysts’ expectations in terms of sales and profits in the third quarter: In particular, business with shoes such as the retro classic Jordan and the newer “LeBron 20” picked up. Currency-adjusted sales were up 19 percent year-on-year at $12.4 billion, but net income fell 11 percent to $1.2 billion due to discounts. In North America, Nike’s largest market, sales soared 27 percent and in Europe by 17 percent. The strategy of focusing entirely on direct online sales to customers is paying off, they say.