Add Nike to the list of brands and stores discount on excess merchandise to empty it from the shelves.
(NKE) said Thursday that its inventory levels had climbed 65% in North America, its biggest market, and 44% overall in the last quarter compared to a year ago.
After browsing limited supply in 2021, Nike now has way too many products, especially when it comes to apparel.
“We effectively have a few seasons coming into the market at the same time,” creating a glut, Nike CEO John Donahoe said Thursday in a call with analysts.
Donahoe explained that when Nike factories in Vietnam and Indonesia had to close after the Covid-19 outbreaks, goods arrived late for this year’s spring, summer and fall seasons. Then Nike’s next orders for the holiday season arrived ahead of schedule. Meanwhile, the brand still has orders for goods in transit.
Nike will offer discounts on items to move them, and these promotions will weigh on its profitability for the next few quarters, he added. Nike stock fell 11% during Friday afternoon.
Investors are also worried about the inventory of other sports companies, Under Armor
(DKS) and other sports companies all fell sharply on Friday as well on news from Nike.
To offload out-of-season merchandise and transition to appropriate holiday selection, Nike will move more apparel to its own factory outlets, promote online and sell more at discount stores such as TJ Maxx. . Nike in recent years has been pull back on the sale of products to other retailers. Sending your goods to discount chains is a last resort.
“We are taking decisive action to eliminate excess inventory, focusing on specific pockets of backlog seasonal products, primarily in apparel,” Donahoe said.
Inventory glut has been a problem across all retail businesses, with Target
(WMT) and others saying in recent weeks that they expect the next shopping season be packed with discounts. This year, retailers have seriously misjudged demand and are sitting on too many casual clothes, homewares, electronics and other non-essentials.
But Nike’s level of excess inventory was not expected.
“The surprise of the quarter was the amount of promotional activity needed to weed out excess apparel,” Bank of America analyst Lorraine Hutchinson said in a note to clients on Friday.
Despite the inventory glut, Nike had some positive news to share: Demand remained strong, especially for sneakers, even in the face of high inflation. Overall, Nike sales jumped 4% last quarter compared to the same period a year ago.
“We are currently seeing strong consumer demand in North America,” Donahoe said. “There is no sign of softness.”