Nike is on sale, and stock is plummeting

New York
CNN Business
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Add Nike to the list of brands and stores discounting excess merchandise to remove it from the shelves.

Nike ( NKE ) said Thursday that inventory levels rose 65% in North America, its biggest market, and 44% overall in the latest quarter from a year ago.

After navigating limited supply in 2021, Nike now has way too much product, especially when it comes to apparel.

“We actually have a few seasons hitting the market at the same time,” Nike CEO John Donahoe said on a call with analysts Thursday.

Donahoe explained that when the Nike factories in Vietnam and Indonesia had to close after the Covid-19 outbreak, goods arrived late for this year’s spring, summer and autumn seasons. Then Nike’s upcoming orders arrived earlier than planned. In the meantime, the brand still has merchandise orders coming in.

Nike will discount merchandise to move them, and those promotions will weigh on profitability for the coming quarters, he added. Nike’s shares fell 11% in afternoon trading on Friday.

Investors are also worried about other athletic companies’ stocks, Under Armor (UA), Adidas (ADDDF), Dick’s (DKS) and other athletic companies also fell sharply on Friday also on the Nike news.

To offload items that are now out of season and shift to the right holiday selection, Nike will move more apparel to its own factory stores, market online and sell more to discount stores like TJ Maxx. In recent years, Nike has withdrawn from selling products to other retailers. Sending your goods to discount chains is a last resort.

“We are taking decisive action to remove excess inventory, focusing on specific pockets of seasonally late products, primarily in apparel,” Donahoe said.

Inventory gluts have been an issue across retail companies, with Target ( TGT ) , Walmart ( WMT ) and others saying in recent weeks that they expect the upcoming shopping season to be packed with discounts. This year, retailers seriously misjudged what’s in demand, sitting on too much casual wear, home goods, electronics and other non-essentials.

But the level of Nike’s excess inventory was not expected.

“The surprise of the quarter was the scale of promotional activity needed to move through excess clothing,” Bank of America analyst Lorraine Hutchinson said in a note to clients on Friday.

Despite the inventory glut, Nike had some positive news to share: Demand remained strong, especially for sneakers, even in the face of high inflation. Overall, Nike’s sales increased 4% last quarter from the same period a year ago.

“We are seeing strong consumer demand in North America at the moment,” Donahoe said. “There is no sign of softness.”