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NEW YORK: Nike reported lower quarterly profits on Thursday (Sept 29) on increased logistics spending and a hit from product markdowns, as it pivots in a fast-changing consumer market challenged by inflation.

The sports giant topped analyst estimates for both earnings per share and revenues, but shares fell sharply as it faced questions over excess inventory in North America and signalled the strengthening dollar would dent results.

Nike expects a US$4 billion (RM18.6 billion) hit from the stronger dollar in its current fiscal year, said chief financial officer Matthew Friend on a conference call over its fiscal 2023 first quarter results.

Profit for the quarter ending Aug 31 was US$1.5 billion, down 22% but translating into earnings per share that exceeded expectations. Revenues rose 4% to US$12.7 billion.

While sales once again fell in Greater China, a market hard hit by Covid-19 restrictions, Nike notched higher sales in its other three regions, including North America, where revenues jumped 13%.

But the company is facing a much more promotional environment in its home market, where other retailers are offering deals as consumers respond to costlier gasoline, groceries and other household items.

At the same time, Nike has seen a 65% jump in inventories in North America, an increase that reflects an uptick in early orders from retailers concerned about supply chain delays, as well as improving delivery times.

Friend said Nike has continued to see strong consumer demand for choice products, but that it is working to offload a glut of older items that have generated less interest.

“We’re focused on trying to clear through that late-season apparel inventory,” he told analysts on a conference call.

Nike expects full-year gross margins to decline between 200 and 250 basis points, anticipating the greatest fall in the second quarter.

Demand for Nike’s brands including Jordan and Converse has slowed, analysts have said, as sneakerheads lose enthusiasm for discretionary products due to the cost-of-living crisis.

Neil Saunders, managing director of consultancy GlobalData, said Nike’s results were “relatively strong”, but warned it was not immune to macro challenges.

“At present, consumer sentiment and spending are holding up relatively well and we believe this bodes well for the upcoming quarter. However, as we move into 2023 and beyond the demand picture could soften,” he said.

“Nike is in a better position than most brands, but it may find it harder to punch out such good numbers as it moves into the back end of its fiscal year.”

Shares fell 10.1% to US$85.68 in after-hours trading. – AFP, Reuters

Nike expects a US$4 billion hit from the stronger dollar in its current fiscal year. – Reuterspix

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