Nike Raises Outlook After Making Progress With Inventory Woes

“We believe the inventory peak is behind us as actions we’re taking in the marketplace are working,” Nike Chief Executive

John Donahoe

said on a conference call with analysts.

Executives said Nike is now expecting full-year revenue to grow by a percentage in the low teens when excluding currency fluctuations, an increase from its forecast in September of low double-digit percentage growth. The most bullish forecast reflects what Nike has seen from consumers starting in August through the first couple of weeks of December, executives said.

Analysts have been watching Nike and other retailers for progress in trimming inventories as many consumers have shifted discretionary spending as inflation pounds their budgets.  Executives said that they have seen strong demand but the company is aware that economic issues facing consumers haven’t abated.

Nike pared down its inventory levels from the first quarter, but they remain elevated. The company said the value of its inventory was $9.3 billion in the quarter ended Nov. 30, up 43% from the prior year.     

Finance chief

Matthew Friend

said inventory comparisons were distorted by last year’s factory closures in Vietnam. The inventory levels seen for the most recent quarter were in line with the plans that the company set out 90 days ago, Mr. Friend said.

“As we look at transit times continuing to improve, one of the things that gives us greater confidence is a more predictable flow of supply on normal lead times,” Mr. Friend said.

For the past two years supply-chain snarls have pinched into Nike’s growth as the company faced a lack of inventory because of Covid lockdowns and factory closures in Vietnam and China. Then, the company sought to increase orders to both meet consumer demand as well as get ahead of transit constraints.

Nike executives have said the company started increasing discounts this past summer but more aggressively sought to clear out items in the fall quarter.

To help keep future inventory levels in line, Mr. Friend said Nike was cutting orders with its suppliers. “We have tightened our second-half buys to prioritize inventory health across the marketplace,” he said.

Nike went from having a lean inventory and being able to charge full prices for its goods a year ago, to having to reduce its inventory in a marketplace where products are sold with discounts. Some items are still able to sell without steep discounts. Executives said products in franchises, like the Jordan brand, continue to see full-price sales.

In North America, sales rose 30% from a year ago, boosted by markdowns, Nike said. Strong sales of products with wholesale partners also helped the quarterly performance, executives said.

Retailers that sell Nike products, such as

Dick’s Sporting Goods Inc.

and

Foot Locker Inc.,

posted better-than-expected sales in their most recent quarters, in part, because they had access to products that were hard to get for the past two years. 

Foot Locker had been bracing to have fewer Nike items on its shelves as the sneaker giant planned to shift how much product it sent to some retailers. But Foot Locker is now expecting a “higher mix of Nike sales than we originally anticipated,” executives said in mid-November. 

Meanwhile in China, Nike is still recovering from Covid lockdowns and factory closures. In September, the company said the situation was improving. In September, the company said the situation was improving. In the most recent quarter, sales fell 3% overall year over year. When excluding currency fluctuations, they rose 6%. 

Executives said China’s Covid policy transition remained an uncertainty but that the growth in sales came from continued investment in the country. The company said it recently launched China-specific versions of its apps to better serve consumers.

In the latest quarter, Nike posted net income of $1.33 billion, or 85 cents a share, compared with $1.34 billion, or 83 cents a share, a year earlier. Revenue rose to $13.32 billion from $11.36 billion a year earlier. 

Nike was projected to report earnings of $1.02 billion, or 65 cents a share, on $12.58 billion of revenue, according to analysts polled by FactSet. 

Nike shares are down 38% this year through Tuesday’s close, compared with a roughly 20% decline in the S&P 500. 

Write to Inti Pacheco at inti.pacheco@wsj.com