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Nike Stock Rises As Inventory Issues Ease And Demand Remains Strong

Nike Stock Rises As Inventory Issues Ease And Demand Remains Strong
Nike Inc.'s stock rose nearly 15% on Wednesday as investors ignored the sportswear giant's margin pressure and focused on the company's efforts to address inventory issues that have plagued its business in recent quarters.
After Nike reported better-than-expected quarterly results on Tuesday, at least 15 brokerages raised their price targets on the stock, citing higher discounts and strong demand in North America.
"Nike's second-quarter performance demonstrates that the brand remains strong, margin drivers are intact, and global demand is healthy," said Jefferies analyst Randal Konik, who raised his price target by $25 to $140.
Nike reported in September that its inventories had risen 44% to nearly $10 billion at the end of the first quarter, raising concerns across the industry that consumers were cutting back on discretionary spending due to inflation.
"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 post-earnings call on Tuesday.
While Nike's inventory fell about 3% sequentially at the end of the second quarter, margins fell 300 basis points due to higher promotions and discounts.
Nonetheless, analysts believe the decline was less severe than expected, thanks in part to higher-priced new products 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's sales in North America increased by 30%, while those in China, where the company was recovering from lockdowns, fell by only about 3%, following a 16% drop in the first quarter.
"We see Nike as a must-own discretionary stock heading into (2023)," Credit Suisse said.
After falling about 38% this year, the company's stock hit an over six-month high of $119.18 in early trading.

Christopher J. Mitchell

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