Nike's May-end quarter update implied continued subdued near-term consumer trend where the brand is still withholding wholesale shipments in an effort to have its retail accounts sell-through their higher level of inventories. CFO Matt Friend shared, “The environment is going to continue to be promotional, and that even puts pressure on our wholesale partners in terms of how they think about managing [the potential pressure that we see on the consumer] through the first half of the year...[W]e made a decision to tighten our first-half buys and continue the trend that we had done in the second half. But we are expecting retail sales to continue a trend, so retail sales to the consumer to continue a trend of growth versus the prior year…I would say, in general, the marketplace remains highly promotional. And when we step back and look at the actions that we took last year, we're very happy with where we finished the year.” (You can find our commentary on the overall marketplace here.) While higher markdowns weighed on Nike’s gross margin for the quarter, it guided for higher gross margins going forward--a positive signal for the marketplace overall (given Nike’s outsized impact on the marketplace).
Given the category’s headwinds--softer consumer demand, large amounts of excess inventory at retail, and a promotional environment, we find the outperformance by Nike (at its factory stores) relative to outlet centers overall, and its legacy competitors, of particular note (below).
Nike’s store sales in the U.S. were up mid-teens during the most recent quarter. Nike has three comp power-stores in Los Angeles; visits to these stores were up +5% YoY. Its store in The Grove is one of these and visits and visitors were up +21% and +23%, respectively. For the quarter, the Nike store captured 4.4% of the visits and 5.8% of the visitors to The Grove, up from 3.5% and 4.7% last year–a good measure of strengthening "brand heat" and desirability.