Despite inventory issues in North America, analysts think Nike can bounce back

As Nike faces inventory issues in North America, the shares of the company nosedived by more than 10% this morning. Some analysts were also bullish on the company's stock in the long-term.

The Beaverton, Oregon-based business, posted Q1 sales of $12.7 billion, an increase of 4% over the same period last year.

Net income was $1.5 billion, a 22% decrease from the previous year, while EPS were $0.93.

The company claimed higher freight and logistics expenses, greater markdowns in the Nike Direct division, and headwinds in net foreign currency exchange rates for the decline in gross margin, or profit, of 220 basis points to 44.3%.

Nike experienced higher-than-normal inventory, up 44% in Q1, similar to other brands and retailers, partly because of delayed orders influenced by an erratic supply chain.

Although the inventory problem was an important theme in the earnings release, experts seemed generally optimistic about the possibility of a rebound for the remainder of the year.

Nike seems increasingly like other over-invented promo-chasing merchants, according to BMO analyst Simeon Siegel. But he went on to say that he sees a chance for long-term competitive advantage.

Nike's inventory issues were deemed inexcusable by Baird analyst Jonathan Komp. He pointed out that the company's plans to reduce inventory through markdowns and altered orders for the year's second half would eventually improve things.

Cowen analyst John Kernan remarked that Nike still occupies a point of strength compared to its sports counterparts.


FAQs

What is the leading cause of Nike's fall in profits?
The attempts to sell off extra stock in North America are one of the leading causes of the decline in Nike's profits

What factors point towards future growth?
Nike CEO John Donahoe said during a conference call with investors that the SNKRS app continues to fuel energy to the increasing population of high-value members.