Nike Inc. shares rose after the sportswear giant reported a drop in its stockpile of inventory — a sign it’s making progress in moving out older merchandise for newer, more-profitable items.
(Bloomberg) — Nike Inc. shares rose after the sportswear giant reported a drop in its stockpile of inventory — a sign it’s making progress in moving out older merchandise for newer, more-profitable items.
Inventory fell 10% to $8.7 billion, a bigger decline than analysts expected. Revenue of $12.9 billion for the quarter through August was just short of Wall Street’s average estimate, while gross margin, a key gauge of profitability, was higher than expected.
“We’re very comfortable with the level of inventory in the marketplace, in relation to the retail sales that we’re seeing,” Chief Financial Officer Matt Friend said on an analyst call Thursday.
Nike has been offering discounts to get excess merchandise off store shelves — a strategy that erodes profitability. So the decline in inventories is a sign that the company’s tighter management is paying off. Earnings per share of 94 cents exceeded expectations.
Management expects second-quarter revenue growth to be up slightly, while gross margin is seen expanding about 100 basis points.
The shares rose 8.1% in pre-market trading in New York Friday. The stock had dropped 23% year-to-date through Thursday’s close.
Adidas AG shares gained as much as 7.1% while Puma SE advanced as much as 6.4% in Frankfurt Friday on investors’ hopes that shoemakers will have more pricing power when the surplus of footwear gets cleared out of the market.
Nike also reiterated its guidance for the full year. Revenue is seen rising in the mid-single digits, with margins up as much as 160 basis points.
In Nike’s home market of North America, revenue fell 2%, just missing expectations. Sales in the Greater China region cooled as well, with growth of 4.8% short of estimates. Executives said Nike is still gaining market share in China.
The company reported high-single digit to low-double digital growth with its retail partners, including Dick’s Sporting Goods Inc. in North America. It’s currently undergoing a “reset” with longtime partner Foot Locker Inc., with sales expected to decline in the near-term, Friend said.
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