We Think Wide-Moat Nike’s Brand Value Holds Despite a Tough Near-Term Outlook; Shares Undervalued

Although Nike’s sales performance in its (end-August) first quarter of fiscal 2023 eclipsed our forecast, this result was overshadowed by a disappointing near-term outlook due to the U.S. dollar’s strength and elevated inventories for the firm and peers in North America. Despite healthy demand, Nike has recently struggled to manage its product deliveries due to shipping woes, leading to a surplus of out-of-season inventory. Specifically, its quarter-end inventory jumped 44%. While markdowns will weigh on second-quarter margins, we believe the worst of Nike’s inventory issues has passed as shipping has normalized and sell-through appears solid. The firm reported strong back-to-school demand and double-digit sales growth thus far in September.