What happened
Nike (NKE 0.66%) reported results for its fiscal 2023 first quarter after the closing bell Thursday, and investors didn't like what they saw.
While the company beat analysts' consensus top- and bottom-line estimates, investors are concerned that its inventories rose significantly. In the wake of the report, the retail stock tumbled, and was down 10.2% as of 10:43 a.m. ET Friday.
So what
For the quarter, which ended on Aug. 31, Nike reported revenue of $12.7 billion -- an increase of 4% from the year-ago period, and ahead of Wall Street's average estimate of $12.3 billion.
Image source: Getty Images.
The company's non-GAAP (adjusted) earnings were $0.93 per share, which beat analysts' consensus estimate of $0.92, but was down 20% from the year-ago quarter.
But it was the company's inventories that caught investors' attention. Nike said that inventories on its balance sheet at the end of the quarter were up 44% year over year to $9.7 billion. In the earnings release, the company said that the increase was "driven by elevated in-transit inventories from on-going supply chain volatility, partially offset by strong consumer demand in the quarter."
Investors were also disappointed to see that Nike's gross margin decreased by 2.2 percentage points from the year-ago quarter.
Now what
Unfortunately, shareholders found little comfort from management on the company's earnings call. CFO Matt Friend predicted that Nike's margins will decrease by as much as 4 percentage points in its fiscal second quarter as the company significantly discounts products.
"We expect second-quarter gross margins to decline approximately 350 to 400 basis points versus the prior year, the largest impact across the fiscal year as we discount out-of-season product more aggressively in a largely promotional marketplace," he said. "This will require higher markdowns in our own channels and through wholesale partners."
Retail investors had already been concerned about the state of the U.S. economy, and Nike's latest financial results didn't do much to ease their worries.
