What happened

Shares of Nike (NKE -0.84%) slid by 21.9% in September, according to data provided by S&P Global Market Intelligence. Shares of the sports apparel and footwear company have nearly halved year to date as investors worry over a plethora of problems.

Person stretching before a run.

Image source: Getty Images.

So what

Nike released its fiscal 2023's first-quarter earnings, and it wasn't a pretty picture. Although revenues inched up 4% year over year (YOY) to $12.7 billion, gross profit slid by 1% YOY to $5.6 billion as gross margin fell from 46.5% a year ago to 44.3%. The reasons for the weaker margins were plenty -- a strengthening of the U.S. dollar against a basket of foreign currencies, higher freight and logistics expenses, and discounting to clear off excess inventory.

Along with higher operating expenses, these factors resulted in Nike's net income falling by 22% YOY to $1.5 billion. Growth seemed elusive for this quarter as the company grappled with myriad problems. Its North American inventory surged by 65% YOY due to a combination of factors, such as late deliveries from past quarters, earlier-than-planned deliveries for the holiday season, and a low base effect resulting from factory closures a year prior. The company's China division saw revenues fall 16% YOY while operating income plunged by 23% YOY due to COVID-related closures and disruptions.

Now what

The troubles aren't over yet for the sports giant. Further strengthening of the U.S. dollar will reduce reported revenue for fiscal 2023 by $4 billion and operating income by $900 million. Because of heavy discounting to clear the inventory glut, Nike also expects its gross margin to decline between 2% and 2.5% for the full year.

The good news is these problems are transitory and should resolve themselves in a few quarters. Meanwhile, Nike's shares should continue to be under pressure, but long-term investors ought to view this as an opportunity to scoop up shares on the cheap.