© Reuters. FILE PHOTO: A jogger wearing Nike shoes runs along the Charles River in Cambridge, Massachusetts, U.S., March 18, 2019. REUTERS/Brian Snyder/File Photo
By Deborah Mary Sophia and Katherine Masters
(Reuters) -Nike topped Wall Street estimates for first-quarter profit on Thursday as higher prices of its sneakers and apparel helped offset a hit from waning demand and persistent cost pressures, sending its shares up about 8% in extended trading.
The world’s largest sportswear maker also forecast a 100 basis point increase in second-quarter gross margins, following six consecutive quarters of declines, on the back of fewer planned markdowns and lower freight costs.
Nike (NYSE:)’s inventories fell 10% in the quarter ended Aug. 31, indicating the company was successful in reducing excess product ahead of the holiday season, quelling investor fears that it would be forced to offer steep discounts.
“We will build on the consumer momentum around running and modern comfort,” Chief Financial Officer Matthew Friend said, adding the company would lean on its sneaker series such as Air Max 1, Infinity and V2K to cash in on the growing demand for running shoes.
The company will also refresh its portfolio of basketball shoes across the Nike and Jordan brands in terms of style, as well as focus on its new Kobe brand, Friend added.
Some investors have raised concerns that Nike’s Jordan brand – a key profit-maker for the company – is “losing steam” as the value of some shoes fall on resale platforms such as StockX.
Nike has also experienced competition from other sneaker brands, including Deckers’ Hoka, On Running and French-owned sports retailer Salomon, as shoppers gravitate toward “performance” shoes.
Some of Nike’s recent running shoe releases, such as the Invincible 3 and Zoom (NASDAQ:) Fly 5, were “not particularly well-received by reviewers,” according to Dylan Dittrich, head of research for analytics firm Altan Insights.
Nike CEO John Donahoe said the company would turn its attention to “prioritizing the everyday runner” and connecting with shoppers in more channels, including specialty running stores.
The company maintained its annual forecasts and said it expected second-quarter revenue to be up slightly. Analysts had expected a 2.1% rise to $13.59 billion, according to LSEG data.
“Nike has showed that it has pricing power … (and) will be able to avoid really severe discounting compared to some others (in the holiday season) this year. It’s in better shape,” Morningstar senior equity analyst David Swartz said.
The company posted total revenue of $12.94 billion in the quarter, missing analysts’ estimates of $12.98 billion.
Nike reported a profit of $1.45 billion, or 94 cents per share, beating estimates of 75 cents per share.