Nike is hoping to raise prices on its latest product range despite using markdowns recently to clear its inventory. The sneaker behemoth plans to push up prices by low single digits to keep pace with rising costs and to protect its profit margins. However, after Nike offered discounts late last year to clear gluts, savvy shoppers have become more price conscious, reports The Wall Street Journal. With their buyers inured to lower prices, Nike will need to be innovative to command higher prices, says the paper, especially in the face of increased competition.

• Nike also wants to sell more of its goods directly compared to wholesale outlets.
• NIke’s wholesale customers make up 56% of sales compared to 70% four years ago. Meanwhile, Macy’s and Designer Brands will start selling more Nike products later this year.

By Jessy Bains, Editor at LinkedIn News

Nike’s 2024 pressured by weak North American demand, inventory glut

Reuters – Nike (NKE.N) is expected to forecast full-year profit below Wall Street estimates, as demand for the sportswear giant’s products from wholesalers such as Foot Locker (FL.N) and Hibbett (HIBB.O) wanes in the United States due to still-high inflation.

At least seven analysts trimmed their fiscal 2024 expectations for Nike’s earnings per share since the beginning of June and 10 slashed their price targets on the company’s stock, ahead of its fourth-quarter results.

“Coming into this current calendar year … wholesale orders are weak at the moment,” said Morningstar analyst David Swartz, adding that declines in these orders will have a negative impact on Nike.

There have been heavier markdowns within sneakers in the United States, said Jane Hali & Associates senior analyst Jessica Ramirez, adding the U.S. market has been difficult and is quite volatile at the moment.

THE CONTEXT

In March, Nike warned of earnings pressure amid its attempts to get rid of excess inventory through heavy discounts. It still reaped the benefits of rival Adidas’ (ADSGn.DE) disastrous breakup with the musician formerly known as Kanye West last quarter as well as demand for Jordan Retro and LeBron 20.

Sales to wholesale customers, which made up nearly 58% of total Nike Brand revenues in fiscal 2022, have been on the decline as retailers cut back on orders and become more prudent due to a drop in discretionary spending among shoppers.

In May, retailer Foot Locker, which has touted its ‘renewed’ relationship with Nike, also flagged declining sales, particularly for fashion-oriented sneakers.

Barclays analysts noted Nike could see “moderation, and potentially negative, wholesale channel growth” in the fourth quarter.

Still, analysts expect a stronger rebound in China to offset the hit to sales from cooling consumer appetite for higher margin products in the North American region and help retain its top spot as the world’s leading sportswear brand.

THE FUNDAMENTALS

** Nike will report fourth-quarter earnings on June 29 after markets close

** Nike is expected to report fourth-quarter revenue of $12.59 billion, a 2.9% rise from a year earlier, according to analysts polled by Refinitiv

** Fourth-quarter profit per share is expected to be 67 cents

** Analysts expect Nike’s fiscal 2024 revenue to rise 6.4% to $54.23 billion and earnings per share to be $3.91

BY Ananya Mariam Rajesh REUTERS