Nike Q1 forecasts downbeat, despite higher Middle East sales

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Nike Inc forecast first-quarter revenue below estimates as it expects to discount more and wrestles with pandemic-related disruptions in China, its most profitable market.

The company’s shares fell 3 percent to $107 after the bell.

Analysts are mixed about Nike’s prospects in China this year even as strict COVID-19 lockdowns have been lifted in several of the country’s major cities, as people cut down on spending and a penchant for home-grown brands such as Li Ning and Anta remains firm.

“We are taking a cautious approach to Greater China, given uncertainty around additional COVID disruptions,” Nike Chief Financial Officer Matthew Friend said.

The company expects first-quarter revenue to be flat to slightly up, below estimates of a 5.1 percent increase, according to Refinitiv IBES data.

“The guidance was somewhat disappointing,” Morningstar analyst David Swartz said.

Fashion retailers in China are also stuck with piles of unsold stock as the recent re-opening has also seen a flood of goods being shipped from warehouses to store shelves.

Nike said its gross margins would be under pressure this year due to higher freight and product costs, and as it discounts more to sell seasonal inventories that arrived late due to supply snarls.

The company’s inventories rose 23 percent to $8.4 billion at the end of May as more of its products remain in transit due to supply disruptions.

Nike also forecast fiscal 2023 revenue to increase in the low double digits percentage range on a currency-neutral basis.

For the fourth quarter, the company reported revenue of $12.23 billion, beating estimates of $12.06 billion, helped by higher sales in Europe, Middle East and Africa.

Nike recorded a $150 million charge related to its decision to exit Russia and transition of business models in a few South American countries.