Not long ago, Nike announced its first quarter results for fiscal year 2023. As a result, U.S. stock prices fell by nearly 13%. Nike’s market value evaporated by more than $19 billion in one day.
Discounts can’t save inventory, and there will be fewer orders in the fall.
This financial report is for the first quarter of fiscal year 2023, which is the three-month data from June to August this year. The report shows that within three months, Nike’s revenue was US$12.687 billion, a year-on-year increase of 4% (compared to the same period last year), but its net profit was US$1.468 billion, a year-on-year decrease of 22%.
Nike’s first-quarter gross profit margin fell 220 basis points to 44.3%, compared with the consensus estimate of 45.4%. The decrease in margin was primarily due to higher freight and logistics costs, increased markdowns in Nike’s direct sales business and unfavorable changes in foreign currency exchange rates, including hedging.
In terms of inventory, it increased significantly by 44% year-on-year to US$9.7 billion in the first fiscal quarter. Nike pointed out that continued fluctuations in the supply chain led to an increase in in-transit inventory, which was partially offset by strong consumer demand in the quarter.
Gross profits fell and inventories increased. What’s the meaning? It can’t be sold even with a discount! To this end, Nike Chief Financial Officer Matthew Friend said on a conference call with analysts:
“We are taking decisive action to clear excess inventory, which is expected to have a short-term impact on gross margins this fiscal year.” But he added: “This cost will far outweigh the benefits of clearing market capacity.”
Friend said that Nike has been increasing discounts since the summer, and inventory in the North American market has reached its peak this quarter. The company will actively clear excess merchandise in the fall and plans to tighten product purchases. This means that orders will continue to decrease in the second half of the year.
China’s shrinking market makes investors pessimistic
The financial report shows that by region, Nike’s revenue in Greater China fell by 16%, Latin America increased by 5%, North America increased by 13%, and Europe, the Middle East and Africa increased by 1%. By category, core footwear sales surged 17% to US$3.81 billion, while apparel sales increased 4% to US$1.49 billion.
Nike’s current operating income in Greater China continues to decline, falling by 20%, 5.2% and 19% respectively in the first three quarters. This quarter it fell again by 16%. However, inventory in Greater China fell 3% year-on-year in the first quarter, and Nike expects inventory levels in Greater China to return to normal before the end of the second quarter.
Previously, Nike was very popular among young consumers in China, and the price of Nike in China was very high, especially for sports shoes. The price was once called sky-high. But there are three well-known reasons: 1. The Xinjiang cotton incident; 2. The transfer of production areas leads to poor quality control; 3. The rise of domestic brands has caused more and more Chinese consumers to abandon Nike.
The continued shrinking of the Chinese market has made investors very pessimistic about Nike’s future stock price. Affected by this negative impact, the stock prices of Asian Nike suppliers and peers suffered in early trading on September 30.
In terms of supply chain groups, as of 10:04 a.m. that day, the stock prices of major Nike OEMs Fengtai and Ruhong fell 5.95% and 7.66% respectively. Among them, Fengtai relies on Nike for 88% of its revenue, and Ruhong relies on 13%.
Baocheng, a major sports shoe OEM, fell more than 3%, and its Hong Kong-listed subsidiary Baosheng International fell 1.92%. Shenzhou International fell 3.71%; 25% of Shenzhou International’s revenue was contributed by Nike.
Will the sportswear market grow exponentially? These five industry trends for local brands are worth paying attention to
Looking at the domestic market, a report from iiMedia Research shows that China’s sports shoes and apparel market will reach 385.8 billion yuan in 2021. It is expected that China’s sports shoes and apparel market will reach 598.9 billion yuan by 2025. Survey data shows that among Chinese consumers of sports shoes and apparel, those in first- and second-tier cities purchase more frequently, with a higher proportion of middle- and high-income groups, and their purchase demands are mainly for daily wear. When purchasing sports shoes, the most important factors consumers consider are function and comfort; when purchasing sportswear, the most important factors consumers consider is comfort.
At the same time, in recent years, benefiting from the improvement of consumers’ health awareness, the number of sports enthusiasts has continued to expand, allowing China’s sports shoes and apparel industry to maintain rapid development. According to survey data, 35.1% of people will choose appropriate exercise as their way to maintain health in 2022. The popularization of the concept of national fitness has promoted the expansion of sports venues, and the number of sports venues has increased year by year.
Trend 1: Material issues
Trend 2: Shoe speculation problem
Trend Three: Transformation Issues
On March 9, 2021, sports brand Guireniao Co., Ltd. issued a risk warning: The company is at risk of being declared bankrupt and delisted from A-shares due to failed reorganization. There are two main reasons: First, the company’s cash flow is tight due to blind expansion.The second is that the product is not competitive enough, and its own design capabilities and ability to control market trends are insufficient.
As a comeback for long-established domestic products, it launched a brand upgrade strategy in Shanghai in 2016, positioning its target group as mid-to-high-end consumers, launching 12 new products, upgrading classic products, and breaking out of the industry with its “retro” style. iiMedia analysts believe that as more and more brands emerge in China’s sports shoes and apparel industry, old and existing brands must have correct positioning and development strategies if they want to gain advantages in market competition. Successful transformation can only be achieved by adapting to changing market trends.
Trend 4: The rise of national trends
As Chinese footwear and apparel brands appear on the stage of international fashion weeks and the popularity of national trend culture, China’s sports shoes and clothing industry has set off a “national trend craze”, and domestic brands have begun to rise one after another. Data shows that on the Alibaba platform, the cumulative search volume for keywords related to Chinese elements exceeded 12.6 billion times in 2018. From January to July 2019, the search volume of the keyword “Guochao” increased by 392.66% year-on-year.
Guochao, which means “Chinese style trend”, has rich and multidimensional connotations. The upgrading of China’s manufacturing is the basis for the rise of the national trend. The “national trend” marks the optimization of the industrial structure. High-quality domestic products have won the market. Made in China has entered the global mid-to-high-end industrial chain. “China Speed” is moving towards “Chinese Quality” change. In the future, with the “national craze” and the unique “Chinese feelings” and “Chinese confidence” of the Chinese people in the new era, China’s sports shoes and apparel industry will also see the emergence of various types and different creative national fashion brands, further Enrich China’s sports shoes and apparel market.
Trend 5: Brands going overseas
Domestic sports brands have more confidence to show their strength to the world. Li Ning has made itself known to overseas consumers through its runway shows, while Anta and Xtep have made a splash in the international sports circle by acquiring international brands.
On March 12, 2019, an investor consortium composed of Anta, FountainVest Capital, Anamed Investments and Tencent announced that it would acquire Amer Sports Company for 4.6 billion euros. This is the largest overseas merger and acquisition in the history of my country’s apparel industry. . On August 1, 2019, Xtep acquired three sports brands: K-Swiss, Paladin and Supra for US$270 million.
At present, the market value of Chinese sports shoes and apparel brand Anta has ranked third among the world’s sports brands. It has become an inevitable trend for Chinese sports shoes and apparel brands to gradually become internationalized. The current overseas sales markets of Chinese sports brands are mainly distributed in Southeast Asia. In the future, they will gradually enter the vast markets of developed countries in Europe and the United States. Chinese sports footwear and apparel brands may usher in an “overseas craze”.
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