Nike is on sale, and its stock is plunging

New York
CNN business

Add Nike to your list of brands and stores discounting excess merchandise to clear it off the shelves.

Nike ( NKE ) said Thursday that its inventory levels rose 65% in North America, its biggest market, and 44% overall from a year ago.

After navigating limited supply in 2021 Nike is now carrying too much product, especially when it comes to apparel.

“We effectively have a few seasons landing on the market at once,” Nike CEO John Donahoe said on a call Thursday with analyst John Donahoe.

Donahoe explained that when Nike factories in Vietnam and Indonesia were forced to close following the Covid-19 outbreak, merchandise arrived late for this year’s spring, summer and fall seasons. Then Nike’s next holiday order arrived earlier than expected. Meanwhile, the brand follows orders for goods in transit.

Nike will discount to move them, and those promotions will weigh on profitability for the coming quarters, he added. Nike shares were down 13% early Friday.

Investors are also worried that the stock of other sports companies, Under Armor ( UA ), Adidas ( ADDDF ), Dick’s ( DKS ), and others will also fall sharply on Friday on the Nike news.

To offload off-season merchandise and shift to the right holiday selection, Nike will bring more apparel to its factory stores, promote it online and sell more to discount stores like TJ Maxx. Nike has pulled back in recent years from selling products to other retailers. Sending his goods to discount chains is a last resort.

“We are taking decisive action to clear excess inventory, focusing on specific pockets of late-season products, particularly apparel,” Donahoe said.

Inventory gluts have been a problem for retail companies, with Target ( TGT ) , Walmart ( WMT ) and others saying in recent weeks that they expect the upcoming shopping season to be filled with discounts. This year, retailers have misjudged demand and are sitting on too much clothing, home goods, electronics and other non-essentials.

But the level of Nike’s excess inventory was not expected.

“It was a surprising quarter for the amount of promotional activity needed to move excess clothing,” Bank of America analyst Lorraine Hutchinson said in a note to clients on Friday.

Despite the heavy inventory, Nike had some positive news to share: demand remained strong, especially for sneakers, even in the face of high inflation. Overall, Nike’s sales were up 4% last quarter compared to the same period a year ago.

“We see strong consumer demand in North America today,” Donahoe said. “There is no sign of softness.”