Nike’s growth in the Chinese market is under pressure.
On March 21, Eastern Time, the company released its third quarter results for fiscal year 2023 ending on February 28, 2023. During the period, Nike’s revenue was US$12.39 billion, a year-on-year increase of 14%; net profit attributable to its parent company was US$1.24 billion, a year-on-year decrease of 11%.
Among them, Greater China revenue was US$1.99 billion (accounting for 16.9%), down 7.7% year-on-year, and currency-neutral growth was 1% year-on-year.
Clear inventory
Nike’s profit decline is related to inventory clearance.
The financial report shows that in the third quarter, its gross profit margin decreased by 3.3 percentage points to 43.3%, mainly due to high discounts to clear inventory, continued foreign exchange headwinds, and rising logistics and raw material costs. Strategic pricing improvements offset some of the negative effects.
At the same time, Nike’s operating and administrative (SG&A) expense rate increased slightly by 0.3 percentage points to 32.0%, and the amount of expenses increased by 15% year-on-year to US$4 billion, of which demand creation expenses increased by 8% to US$900 million, mainly for advertising and marketing activities. Growth; operating and administrative expenses increased by 17% to US$3 billion, mainly due to an increase in salary expenses and NIKE Direct-related variable costs. The effective tax rate for this quarter was 16%, which was basically the same as the same period last year (16.4%). The final net profit margin was 10.0%, a year-on-year decrease of 2.8 percentage points.
Judging from inventory, Nike is moving towards a positive cycle.
The financial report shows that in the third quarter, its inventory increased by 16% year-on-year and decreased by 5% month-on-month. Inventory amount was US$8.9 billion, an increase of 16% year-on-year, mainly due to rising raw material and logistics costs.
During the same period, Nike’s inventory amount and inventory volume dropped significantly month-on-month. In terms of regions, the inventory amount in North America increased by 14% year-on-year, and terminal sales exceeded purchases; in Greater China, the inventory amount was -4% year-on-year, and the inventory was at a healthy level; in terms of categories, clothing inventory fell year-on-year, among which clothing inventory in the North American market Down high single digits. The clothing inventory problem is that the goods take a long time to be delivered and the sales time of the season is missed. This quarter, the company has paid more attention to the delivery time of the products in the season, and it is now gradually approaching the pre-epidemic level.
As a result, Nike said that based on current passenger flow trends and having previously cut back on purchases of spring and summer goods, it is more confident that inventories in various markets will return to healthy levels by the end of the fiscal year, and it expects inventory levels to fall beyond plan by the end of the year.
In terms of turnover days, Nike’s inventory turnover days were 107 days, +2 days year-on-year, and +1 day month-on-month; accounts receivable turnover days were 30 days, +1 day year-on-year; accounts payable turnover days were 35 days, -1 day year-on-year. . ROE was 37.3%, a year-on-year decrease of 8.4 percentage points and an increase of 4.7 percentage points from the third quarter of fiscal 2021.
The gap widens
Nike’s regional performance is divided.
The financial report shows that in the third quarter, the company’s revenue in North America was US$4.91 billion (accounting for 41.8%), a year-on-year increase of 27%, and currency-neutral revenue increased by 27%; in the EMEA region (Europe, the Middle East, Africa), revenue was US$3.25 billion (accounting for 27.6%), a year-on-year increase of 17%, currency-neutral revenue increased by 26%; Asia-Pacific and Latin America revenue was US$1.60 billion (accounting for 13.6%), a year-on-year increase of 10%, currency-neutral revenue increased by 26%; Revenue increased by 15%, of which the transition to distribution models in Chile, Argentina and Uruguay brought about 8 percentage points of foreign exchange headwinds.
There are multiple reasons for the low performance growth in Greater China.
In terms of channels, NIKE Direct’s currency-neutral revenue increased by 3%, of which NIKE Digital decreased by 11%, mainly due to consumers returning to offline consumption after the optimization and adjustment of epidemic policies. In December, stores were closed due to the epidemic and operations declined; in January, offline passenger flow recovered, the growth rate turned positive, and retail growth momentum was strong during and around the Spring Festival; in February, with the Spring Festival in the same period last year, the growth potential accelerated compared to January.
In the third quarter, Nike’s profit before interest and tax in Greater China was US$700 million, down 10% year-on-year; its EBIT profit margin was 35.2%, down 1.1 percentage points year-on-year.
For comparison, last year, Anta’s revenue increased by 8.8% year-on-year to 53.65 billion yuan; net profit attributable to the parent company was 7.59 billion yuan, down 1.7% year-on-year. Li Ning’s revenue increased by 14.3% to 25.80 billion yuan; net profit increased by 1.3% to 4.06 billion yuan.
Based on the difference in the fiscal year span of each company, based on the first and second quarters of Nike’s fiscal year (June-November), the company’s revenue is approximately US$3.45 billion (approximately 23.49859 billion yuan based on the exchange rate on March 23). In the second half of the year, Anta’s revenue was 27.69 billion yuan, a year-on-year increase of 4.4%, surpassing Nike.
There are multiple reasons behind this. Data from the National Bureau of Statistics show that in 2022, the total retail sales of consumer goods will be 43.97 trillion yuan, down 0.2% year-on-year. Among them, the performance of clothing, shoes and hats, and knitted textiles continued to be weak, and their total retail sales fell by 6.5%. In November 2022, the consumer confidence index fell to an all-time low.
Under such circumstances, consumers pay more attention to cost-effectiveness, and Anta can better meet this demand.
The company has many lines including the main brand Anta, the fashion sports brand FILA, and the outdoor sports brand DESCENT to meet different needs. In 2022, Anta’s main brand revenue will increase by 15.5% to 27.72 billion yuan; the revenue of FILA, which has a higher average price, will decrease by 1.4% year-on-year to 21.52 billion yuan.
Sales data of trendy shoes on the Dewu platform show that in January, the average price of Nike was 645 yuan and the average price of FILA was 465 yuan.The average price of Li Ning is 349 yuan, and the average price of Anta is 296 yuan.
For Nike, as the consumer market recovers, there is still growth in the Chinese market. However, given the company’s lack of presence in the relatively low-price market, it will be difficult to surpass Anta.
On March 22, Eastern Time, Nike closed at $119.48, a decrease of 4.88%. Before the market opened on March 23, the company’s stock price was on the rise.
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