Nike increased both revenue and profit by 5% in the year to the end of May. Yet 2022 started off unpromisingly, with margins and revenues shrinking due to rising inventories and cost inflation.
Logistical headaches remain
Even Nike is feeling the effects of the difficult macroeconomic situation. A strong second half of 2021 was followed in the first half of 2022 by falling margins, transport problems and cost inflation. The withdrawal from Russia is also costing Nike almost 150 million dollars (142 million euros).
In the three months up to the end of May, gross margin fell 80 basis points to 45%, mainly due to inventory tie-ups in China and higher freight and logistics costs. Sales fell 1% in the quarter and net profit was 1.4 billion dollars (1.3 billion euros), down 5%.
Nike is glad that for several years now it has been focusing on direct sales to consumers and has been reducing its wholesale network. By selling directly, it can more easily improve its margins and perform well digitally. Online turnover grew by 18% during the entire past financial year.
Two weeks longer in transit
Over the entire year, revenue rose by 5% to 46.7 billion dollars (44.3 billion euros). Net profit was 6 billion dollars (5.7 million euros), an increase of 6%. Marketing costs rose by 24%, mainly due to digital investments, but it is particularly striking that stocks grew by no less than 23% to 8.4 billion dollars (almost 8 billion euros).
Two thirds of that inventory is not in Nike warehouses, but is still in transit, says CFO Matt Friend according to business newspaper De Tijd. Many products are stuck in ports, on the one hand in China due to the Covid crisis and on the other hand in the US due to a persistent labour shortage.
Friend fears that the supply problems will persist until at least 2023. “Compared to pre-pandemic times, it takes two weeks longer to get products to customers, especially in North America.” This leads to higher costs, including for transport by sea, which in turn translates into declining margins. For the coming financial year, Nike therefore expects a stagnating gross margin at best.