Nike's Earnings Expose Cracks On U.S.'s Strongest Economic Pillar 

 | Sep 30, 2022 13:22

  • Nike's inventories rose 44% in the latest quarter, hitting the retailer's margins
  • Investors sent Nike stock tumbling amid uncertainty about the earnings outlook
  • Despite the macro headwinds, investors have many reasons to feel optimistic about the company's long-term prospects

    • Strong consumer demand has been the primary source of confidence in the world's largest economy in the post-pandemic environment. Even as the Fed embarked on its most aggressive monetary tightening cycle in decades, many economists argued that a soft landing remained possible, given the substantial pent-up demand for consumer goods, such as shoes, clothing, and cars.

    But yesterday's earnings report from Nike (NYSE:NKE) revealed that the strongest pillar of the U.S. economy might be endangered as consumers deal with a double blow in the shape of high inflation and surging interest rates.

    The world's largest sporting-goods company told investors yesterday that it's dealing with a massive pile of unsold products—a challenge forcing the retailer to offer aggressive discounts and take a hit on its margins.

    On Thursday, the Oregon-based company said global inventories had risen 44% to $9.7 billion in the quarter that ended on Aug. 30. In North America, the company's largest market, they were up 65% compared with a year ago, mainly due to slowing demand and late shipment arrivals.

    Against such a backdrop, Nike will see its margins erode, dropping 200 to 250 basis points this fiscal year—the previous estimate was that margins would be flat or decline 50 basis points, maximum. 

    While full-year sales should still grow in a low double-digit range when adjusting for currency, real expansion is now seen in the low to mid-single digits.

    h2 A Buying Opportunity?/h2

    Investors sent Nike stock tumbling during Friday trading. Shares were down 11.5% at the time of writing. Today's decline has pushed Nike's year-to-date decline to almost 50%, more than double the losses of the S&P 500 during the same period.