NIKE, Inc. Reports Fiscal 2023 Fourth Quarter and Full Year Results — NIKE, Inc.
BEAVERTON, Ore., June 29, 2023 — NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2023 fourth quarter and full year ended May 31, 2023.
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Full year reported revenues were $51.2 billion, up 10 percent compared to prior year and up 16 percent on a currency-neutral basis*
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Fourth quarter reported revenues were $12.8 billion, up 5 percent compared to prior year and up 8 percent on a currency-neutral basis
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NIKE Direct reported revenues for the fourth quarter were $5.5 billion, up 15 percent compared to prior year and up 18 percent on a currency-neutral basis
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Wholesale reported revenues for the fourth quarter were $6.7 billion, down 2 percent compared to prior year and up 2 percent on a currency-neutral basis
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Gross margin for the fourth quarter decreased 140 basis points to 43.6 percent
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Diluted earnings per share was $0.66 for the fourth quarter
Is Nike past its peak? A look at the company’s current slump : NPR
I recently stated in an interview on All Things Considered that Nike had hit its peak. I didn’t think the brand could hit the long-time target of 50 billion dollars. This didn’t mean the Swoosh was dying or in danger of being caught by the rest of the sneaker companies. The closest brand to Nike is adidas at 20 billion a year. Nike is a powerhouse company that always seemed to be capable of keeping their ship moving at a consistent speed without having to get rid of excess weight. Nike has long been a brand that could adjust or add a sail when the weather shifted slowing down the ship. Nike, in the midst of any boat race, could move their ship to a position where the wind was to their back filling the sails to push them forward. In other words, Nike has always been a company capable of operating using a pull method. When I stated the brand couldn’t and shouldn’t hit 50 billion dollars it was because I never thought I would see the Swoosh toss excess weight over the side of the ship to maintain its speed.
Gross margin decreased 140 basis points to 43.6 percent, primarily due to higher product input costs and elevated freight and logistics costs, higher markdowns and continued unfavorable changes in net foreign currency exchange rates.
Higher markdowns… That’s the note in the report which speaks to Nike dumping weight as opposed to cleaning up and adjusting to right the ship. Nike hit the elusive 50-billion-dollar mark, but they did so in the most un-Nike way I’ve ever seen. Nike has long utilized a variety of strategies to clean up inventory issues. The Return-to-Vendor policy for their wholesale partners allowed the brand to maintain MAP in retail locations. When a Nike partner couldn’t sell a particular sneaker, Nike allowed that partner to return-to-vendor, clearing storerooms and keeping promotion of Nike footwear in check. This allowed for fuller price sell through. In the last year Nike abandoned MAP requirements for retailers. Without a Minimum Advertised Price an array of Nike footwear became discounted. Long time high performing models like the Air Force 1 was marked down to 79.99. To maintain the boating narrative, Nike’s flagship, highest selling model was so readily available due to Edit to Amplify, the sneakers were on sale. Nike and Jordan Brand products were allowed to be discounted the same week as the product was released in many instances. In the past vendors could RTV to clear storerooms when products weren’t performing well. According to one analyst Nike is no longer allowing wholesale accounts to RTV. This has led to considerable discounting by wholesale partners and offers by account holders to bulk buyers. In the past bulk buyers would jump at an opportunity to buy Air Force 1s at 77 bucks a pair in bulk. Wholesale accounts can’t even move those pairs.
Why is 50 billion a Bad Thing?
Nike’s inventory glut was so bad the distribution centers in Memphis had overflow container storage yards filled to the brim. This had led to the product mix in stores going unchanged because account holders and even Nike stores couldn’t take on more product. In the past Nike could have delivered a flash sale to move product into consumer’s hands. During these flash sales Nike could capture e-mail information and utilize various marketing strategies to entice their buyers to spend 3x more in their digital touchpoints. Just three months ago those container yards were full. Today, those container yards are completely empty. In my opinion Nike’s numbers blossomed because the brand flooded the market. They threw weight overboard giving their ship the appearance of maintaining speed, but in reality, the brand tossed items it would need in the future (see the decline in gross margins). What are those items Nike tossed overboard?
- Brand Integrity – On FootLocker.com there are 2,751 products listed under Nike|Jordan. 998 of those SKUs or 36.38% of all Nike and Jordan Brand footwear is marked down. On Hibbett Sports under sneaker deals for all categories (men, women and kids) of the 927 items currently on sale 308 of those listings are Jordan and Nike products (33.22%) of Hibbett’s inventories from the Swoosh are on sale. When Nike is on sale, it weighs heavily on the other brands being carried in those stores. Nike causes a discount avalanche ultimately driving margins down for retailers at critical times of the year. With Back-to-School on the horizon and deals in abundance, new product will linger through the holiday season creating deeper discounts and the snowball will get bigger.
- Nike Cache – Nike once protected itself by moving discounted product into Nike Factory and Clearance Stores. This could be placed under Brand Integrity because this discount Nike model is all about fractures in the brand’s foundation. The next section will read in contrast to how I stated other brands suffer, but this requires nuance. As customers see Nike on sale, other brands become more attractive. While many less-discriminatory customers see Nike deals, more observant and thoughtful customers will begin to associate Nike with cheap as opposed to the premium and aspirational product it has always been. Retailers with a more diverse product mix will gain the benefit of stronger sell through on models from companies that have maintained their price integrity. On Running, Hoka, Brooks are all brands benefitting from cheap Nike. Nike’s brand cache has been cleared because the same retro products that used to sell out are now in the clearance stores at discounted prices. Nike has never created brand confusion, but in an attempt to hit 50 billion there is no longer a clear distinction between a Nike Factory, Unite or Rise store location. They carry the same things.
In the article above I took the time to look at website traffic for Nike and their biggest wholesale accounts. The brands inundated and controlled by the Nike Wall showed consistent decreases in their e-commerce traffic. The above article is extremely important in understanding why Nike should have never hit 50 billion. A healthy retail relationship requires that account holders are taken care of, not bullied. Nike has always been heavy handed in their relationships, but prior to Donahoe’s tenure Nike always appeared to be fair and justified in their actions. Today, Nike takes shortcuts. I always refer to a small chain of stores in Mississippi as evidence of bullying and mistreatment. Looking Good lost their Nike account in 2015. The stores are in smalltown Mississippi, and they’ve always had a loyal, primarily Black clientele. One of the stores was hit by a tornado at around the same time Nike required them to renovate so they could get their Nike account back. The store spent $500,000 dollars to upgrade and rebuild the store according to Nike’s specs. Nike gave the store their account back in 2019. Last year Nike took their account away. This is the new Nike. All that matters are the numbers.
As much as sneaker culture loves the Swoosh, what the brand used to be is almost a memory. Nike pushed a ton of inventory into their own doors, through their own channels which diminished wholesale accounts which will undoubtedly show a decrease in inventory for the brand and has led to the company hitting 50 billion, but at what cost? A company can’t have a soul, but Nike always felt like something different. Nike generated passion in their fans. A healthy Nike hitting 50billion would mean excitement generated by new product and retro releases. Now to generate excitement Nike has to resort to commodifying the death of Kobe Bryant. There haven’t been any amazing ads or marketing materials. Nothing interesting around Nike Basketball. The NBA Finals featured two stars. One reps Nike but couldn’t sell a sneaker on any day (Nikola Jokic) and one isn’t really a star and wears LiNing (Jimmy Butler). Their most exciting signature athletes are mired in ugly controversies; flashing guns, drunk with strippers (Ja Morant) and public sex dialogue with porn stars (Zion Williamson). The brand that once owned track and field has been basically absent from the sport even as Hayward Field hosted the World Championships last year. The 50 billion happened in the most un-Nike manner and that “success” will have to be measured in how the sales look for the brand’s largest account holders. Nike can’t be judged by its own direct growth. Pushing product into the marketplace is a short-term strategy. The real story will be told by Foot Locker, JD Sports and Hibbett Sports’ sales and inventories.