Adidas rival Nike continues to struggle with high inventories. Since the sporting goods manufacturer was only able to get rid of the surplus goods with high discounts, profits fell in the fourth business quarter (as of the end of May) according to information on Thursday evening and were slightly worse than analysts had expected. Increased costs for raw materials and freight also had a negative impact.
Nike wants to reduce the discounts in the new financial year, and according to its own statements, the group has made good progress in reducing inventories. Growth is likely to slow down.
Discounts squeeze the gross margin
Nike’s revenue increased in the past fourth quarter by five percent compared to the same period last year to 12.8 billion US dollars (11.78 billion euros), as the company announced after the US stock market closed in Beaverton. Earnings per share, however, fell by 27 percent to 66 US cents. Bottom line, profit fell 28 percent to $1 billion.
For the full fiscal year (ended May), revenues increased 10 percent to $51.2 billion, while net profit fell 16 percent to $5.1 billion. Earnings per share fell 14 percent to $3.23.
As in the previous quarter, the world’s largest sporting goods manufacturer helped with sales of its products with discounts, which put pressure on the gross margin. Despite the price cuts, inventories rose slightly to $8.5 billion. For the new fiscal year, Nike CFO Matthew Friend was confident with a view to consumer demand, a robust product pipeline and normalizing supply chains.
Other companies have also accumulated inventories
Nike is not alone with its full stocks. Many retailers are currently groaning under too many goods. The other industry giants such as Adidas or Puma also accumulated high inventories in the past year in view of the supply chain problems and rising raw material and material costs, which they are now trying to get rid of with lower prices. This increases the competitive pressure in the industry.
Puma, for example, has announced a weaker second quarter after a drop in profits at the beginning of the year. Adidas is also complaining about inventories that are too high and assumes that they will only have these under control in the fourth quarter. The development at Nike also affected the shares of the competition on Friday.
