Nike shares surge as inventory challenges start to abate, demand stays strong

Dec 21 (Reuters)Nike Inc’s NKE.N shares soared about 11% on Wednesday as investors shrugged off margin pressure at the sportswear giant and focused on the company’s efforts to fix its inventory problems that have plagued its business in recent quarters.

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At least 12 brokerages raised their price targets on the stock after Nike reported better-than-expected quarterly results on Tuesday, benefiting from higher discounts and strong demand in North America.

“Nike’s second-quarter performance proves the brand remains strong, margin drivers are intact and global demand is healthy,” said Jefferies analyst Randal Konik, who was the most bullish and raised his price target by $25 to $140.

In September, Nike said its inventories ballooned 44% to nearly $10 billion at the end of the first quarter and warned of weaker margins, stoking fears across the industry that consumers were cutting back on discretionary spending due to soaring inflation.

“We believe the inventory peak is behind us as actions we’re taking in the marketplace are working,” Nike Chief Executive Officer John Donahoe said on a post-earnings call on Tuesday.

While Nike’s quarterly inventory declined about 3% from the prior quarter, margins fell 300 basis points due to higher promotions and discounts.

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Still, the decline was smaller than expected, according to analysts, thanks also to higher-priced product launches such as the LeBron 20s and Nike Mercurial shoes.

“Nike offered promotions, but at the same time, they also pushed for new product without the promotion,” said Jane Hali & Associates analyst Jessica Ramirez.

Nike saw sales in North America surge 30%, while in China – where the business was recovering from lockdowns – fell only about 3%, following a 16% slump in the first quarter.

The company’s shares, which have fallen about 38% this year, were at $114.82 in premarket trading, while European peers Adidas ADSGn.DE and Puma PUMG.DEalso rose nearly 7% and 9%, respectively.

UPDATE 4-Nike beats estimates boosted by discounts, promotions; shares surge – Reuters NewsnL4N33A3KP

PREVIEW-Nike sales may soar as discounts draw shoppers; margin squeeze looms – Reuters NewsnL4N3352OD

(Reporting by Aishwarya Venugopal and Deborah Sophia; Additional reporting Ananya Mariam Rajesh in Bengaluru; Editing by Maju Samuel)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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