Nike Inc cautioned that gross margins would remain under pressure throughout the year, joining peers in warning of a blow from increased discounts and a rapidly strengthening dollar.

The company’s shares, which were already among the worst-performing Dow components this year, fell 10 per cent in extended trading.

“We’re going to see substantial markdowns this year through the holiday season. But going into the calendar year 2023, I believe inventories will be much lower after the holiday sell through and then the post holiday sales,” Morningstar analyst David Swartz said.

Nike’s overall inventories increased 44 percent to $9.7 billion at the end of the first quarter, while they increased 65 percent in its largest market, North America.

Analysts claim that demand for Nike’s brands, including Jordan and Converse, has slowed as sneakerheads lose interest in discretionary items due to the cost-of-living crisis.

After inventories ballooned in recent months, rival Under Armour, big-box retailer Target Corp, and a slew of other companies have turned to heavy discounting.

Nike expects full-year gross margins to fall between 200 and 250 basis points, with the greatest drop occurring in the second quarter.

Meanwhile, the company, like many others with extensive international operations in the United States, has struggled with a stronger dollar.

“Headwinds from foreign exchange shifted significantly in the last 90 days as the trend of U.S. dollar strengthening has accelerated,” Chief Financial Officer Matthew Friend said in an earnings call.

The company, which makes over half its revenue from outside North America, doubled its estimates for a hit to annual revenue from the soaring dollar to $4 billion.

The strengthening greenback also helped fuel Nike’s 220 basis points decline in first-quarter gross margins to 44.3 per cent. Analysts had expected a gross margin of 45.4 per cent, according to IBES data from Refinitiv.

Nike’s net income fell 20per cent to $1.47 billion, or 93 cents per share, in the three months ended Aug. 31.

(Adapted from RTE.ie)

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