On Thursday, the world’s largest sportswear manufacturer, Nike Inc., joined competitors in sounding a warning about the impact of increased discounts and a rapidly strengthening dollar.
A stock that had already been one of the worst performing Dow components for the year saw its value drop by 10% in after-hours trading.
“The holiday season this year will bring with it steep discounts. After the holidays and the subsequent sales, I anticipate that stock levels will be significantly lower heading into the calendar year 2023 “According to David Swartz, an analyst at Morningstar.
Stock at Nike (NYSE:) rose by 44% year-over-year to $9.7 billion at the end of the first quarter, with gains of 65% in North America, the company’s largest market.
Analysts claim that the sneakerhead community as a whole has seen a decline in demand for Nike’s Jordan and Converse brands as a result of the cost-of-living crisis.
After months of stockpiling at record levels, many companies, including Under Armour’s (NYSE:) chief rival, the big-box retailer Target Corp (NYSE:), and others, have begun offering deep discounts to clear out excess inventory.
Nike predicts a year-over-year drop in gross margins of 200 to 250 basis points, with the largest drop occurring in Q2.
Meanwhile, the company has struggled with a stronger dollar alongside other U.S. businesses with extensive overseas operations.
CFO Matthew Friend stated in an earnings call that “headwinds from foreign exchange shifted significantly in the last 90 days as the trend of U.S. dollar strengthening has accelerated.”
Since more than half of the firm’s earnings come from markets outside of North America, the firm has doubled its forecast for the annual revenue hit from the rising dollar to $4 billion.
Nike’s gross margins dropped by 220 basis points, or 4.3%, in the first quarter due to the strengthening greenback. According to IBES data provided by Refinitiv, analysts predicted a gross margin of 45.4%.
In the three months ending August 31st, Nike’s net income dropped 20% to $1.47 billion, or 93 cents per share.