Nike Q1 - Low sales, high inventory

When you own a portfolio of around 15 stocks, the chances of them all doing well at the same time is small. Especially if they operate in different sectors and geographies.

One of our stocks which has been through a really tough period is Nike. Recently axed CEO John Donahoe followed a path that, in hindsight, has not worked. He pushed the company to sell directly to clients through a smartphone app, or at Nike concept stores. Admittedly, we heartily endorsed that strategy in this newsletter. Unfortunately, Nike alienated third-party sellers who punted other shoe brands instead.

New product innovation slowed, and their competitors made gains. With volatile demand during and after the Covid pandemic, inventory management was poor.

The quarter that ended in August was weak, with numbers coming out on Tuesday evening. Despite a profit beat, sales decreased 10.4% from this time last year. Footwear sales declined by 10% (despite Paul's best efforts), apparel dropped 9% and equipment was also 15% lower. Not good.

CFO Matt Friend said that sales momentum in the current quarter is looking positive after a successful Olympics marketing campaign and a push for newness and innovation.

Nike is not a business that is in trouble. They still have fantastic margins of 45.4%, an incredible brand and operate in a sector which we feel has room for growth. Most of the negativity has been factored into the share price and we would like to give new CEO Elliott Hill (below) an opportunity to turn this business around. We will hold.