Nike (NKE) failed to hit a slam dunk last year. The stock of the world’s largest manufacturer of athletic equipment fell over 30%.

Can we blame the performance on the bear market? Maybe a little. True, some investors shunned stocks related to consumer spending.

However, the fundamental cause for Nike’s decrease was that economic issues were weighing on earnings. Rising inflation, supply chain issues, and negative currency exchange rates all posed challenges in 2022.

The key question now is, will Nike be able to recover by 2023? Should we anticipate the current losing run to continue? Let us check.

What Went Wrong the Previous Year?

Let’s start with what went wrong for Nike last year. Nike paid more for most of its activities last year due to higher inflation, such as running stores and transporting goods.

Speaking of transportation, supply chain issues caused some inventory to arrive later than intended, while others came faster than predicted.

As a result, Nike battled with excess inventories and found itself with extremely high levels at one time. This required the corporation to discount inventory, in order to create space for newer seasonal offerings.

At the same time, the dollar’s strength versus other currencies has reduced the value of international sales.

All of these issues impacted Nike’s margins and dragged on overall earnings growth last year.

And, as previously stated, investors were hesitant to join Team Nike.

However, things may be changing. Nike announced some favorable trends in its most recent earnings report, for the second quarter ending November 30.

First, Nike declared that the inventory peak had gone. The total number of inventory units has dropped by the low double digits.

In addition, the company has altered its purchasing for the second half of the year to ensure good inventory levels.

Though Nike has recently had to mark down some items to reduce inventory, the business has also witnessed strength in full-price transactions.

Nike also reaped the benefits of “strategic pricing rises” for certain revolutionary footwear goods. This helped to reduce the quarter’s drop in gross margin.

Fan Loyalty

Finally, Nike’s followers’ loyalty increased its gains in the most recent quarter, and this should result in long-term growth.

Member demand was at an all-time high in the second quarter.

This is significant because
Nike’s loyalty program members account for almost half of the demand witnessed in its stores and Nike has witnessed an increase in the high double digits in the number of members who spend more and make more frequent purchases.

Nike’s brand strength is not new; it has long been a global favorite.

However, Nike’s recent efforts to increase its digital presence and provide events such as sneaker launches on its app have moved things to the next level and the corporation is poised to benefit much more as obstacles such as rising prices diminish.

Despite the challenging environment, Nike announced double-digit increases in quarterly revenue, Nike Direct sales, and Nike Brand digital sales.

Overall growth across North America, Europe, the Middle East, Africa, Asia Pacific, and Latin America surpassed 30% on a currency-neutral basis.

Starting the Year on the Right Foot

Now, let us return to our original question: Will Nike recover this year? The stock has had a good start to the year, gaining roughly 8% so far.

And, as previously stated, Nike has made strides in tackling today’s concerns.

Of course, much is dependent on what occurs in the overall economy. If inflation continues to grow, for example, the firm may continue to suffer.

It is impossible to estimate when Nike will recover.

However, the corporation is on the correct track and has the resources to weather the current storm.

The company is already showing signs of progress. And the stock is currently trading at a very fair 35 times trailing-12-month earnings. This compares well to more than 60 during the pre-pandemic period.

All of this means that, whether NKE recovers this year or later, it remains an excellent long-term investment. And, at the current price, it is the ideal time to invest in this past and future winner.

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