Nike has announced its first quarter (Q1) results for the 2022 fiscal year ending August 31, 2021, with revenue up 16% from a year ago. Nike’s direct sales increased 28% and gross margin improved to 46.5% from 44.8% in the first quarter of last year. John Donahoe, CEO of Nike, discussed the growth in the first quarter despite the current supply chain issues and inventory being stable compared to last year. “Nike is doing what we always do, playing offense. We have become stronger from the pandemic and will be even stronger as we come out of it. Nike expects prices to rise in the second half of the year to offset costs related to lingering supply chain problems.
Digital acceleration continues to dominate
Direct acceleration of Nike consumers is a key strategy that has allowed the brand to continue to grow even as it weathered the pandemic. Nike’s 25% direct growth includes its own stores and Nike’s digital sales. “Nike is a growing company with as big a market opportunity as it has ever been,” said Matt Friend, executive vice president and chief financial officer of NIKE.
Digital sales in the first quarter were 20% of total sales and the company is confident it will meet its goal of having digital make up 40% of total revenue by 2025. The Nike app has boosted the convergence of digital and physical purchases for consumers. The app provides endless product aisles and eliminates friction points in the shopping journey. Digital sales are positively impacted by the growth of the Nike app.
Supply chain issues abound
Supply chain issues were a challenge throughout the quarter. Congested ports and factory closures in the first quarter due to COVID-related issues negatively impacted the flow of product to stores, distribution centers and wholesale partners. All shoe factories in Vietnam are still closed due to government mandates over COVID-related issues, resulting in a ten-week production slowdown. Due to these issues, Nike has readjusted its forward-looking statements for the second half of the year to single-digit increases. The previous financial perspective was an increase of less than double digits.
Price increases will be implemented in the second half of the year to offset the transportation, logistics and air freight costs needed to move products through the supply chain, particularly to meet holiday demand. The continued shift to direct-to-consumer sales, a more profitable business for Nike, will also help offset additional costs anticipated in the second half of the year. Friend said, “Nike’s long-term vision remains unchanged despite short-term operational dynamics, the consumer direct acceleration offense drives the business forward. “
Donahoe explained that Nike is getting more agile, more direct and more digital. “The competitive advantages of innovative products, brand strength fueled by compelling storytelling and a list of the world’s best athletes and digital experience will continue to create a separation from the competition. “