Earnings Results: Ways Nike expects the year to get better: Easing discounts, lower costs and doing more to attract runners and female customers

After rival running-shoe makers put Nike Inc. on defense this year and overall demand remained subdued, executives for the athletic-gear giant on Thursday said shopper enthusiasm for sneaker-buying could be getting a bit better.

That could mean more expensive shoes and clothes for customers, as sellers lay off price cuts intended to juice demand. But it will also mean better financial results for Nike
NKE,
+0.23%,
with executives saying that the rampant discounting over the past year could start to ease.

“We are cautiously planning for modest markdown improvements for the balance of the year, given the promotional environment,” Chief Financial Officer Matthew Friend said on Nike’s earnings call Thursday to discuss its first-quarter results, in which per-share profit topped expectations while sales fell just short.

Management said it continues to expect full-year sales to rise by mid-single digits. And they said they saw product costs falling in the second half of the year and a slightly more forgiving foreign-exchange backdrop — all of which translate to improving margins.

Shares jumped 7.9% after hours.

Nike reported earnings after stiff competition — from the likes of Adidas
ADDYY,
-0.51%
and running-shoe maker On Holding
ONON,
+0.27%
— and weaker demand for sneakers and clothing kept prices lower, after last year’s surge in inflation forced customers to cut back on spending as they covered more basic needs. While analysts say Nike stands to benefit from an enduring shift toward more casual gear, recent outlooks from sporting-goods chains like Foot Locker Inc.
FL,
+0.65%
and Dick’s Sporting Goods Inc.
DKS,
+0.38%,
which sell a lot of Nike gear, have been more downbeat.

Friend said Nike is planning for “near-term sales declines” at Foot Locker, as both the sneaker maker and the retail chain recalibrate their dependence on each other. Nike over recent years has tried to sell more of its products itself — either online or through its own stores — rather than going through other retailers’ stores. He said that no single partner of Nike’s represented more than a mid-single-digit share of Nike’s total business.

Still, executives called out areas of improvement. Chief Executive John Donahoe said: “We have opportunity to deliver a more compelling assortment, particularly when it comes to serving our women consumers.”

He also said that Nike needs to “drive more meaningful consumer connections among everyday runners.” He said trail running is Nike’s fastest-growing running segment, and that the company is trying to make deeper inroads with both trail and everyday runners.

Nike on Thursday reported a fiscal first-quarter profit that beat expectations, although revenue came up just shy of Wall Street’s estimates, amid a drop in sales for Converse sneakers.

The athletic-gear giant reported fiscal first-quarter net income of $1.45 billion, or 94 cents a share, compared with $1.47 billion, or 93 cents a share, in the same quarter last year. Revenue crept higher to $12.94 billion, compared with $12.69 billion in the prior-year quarter.

Analysts polled by FactSet expected Nike to report earnings per share of 76 cents, on revenue of $13 billion.

Gross margin fell 10 basis points to 44.2%, weighed by higher product costs and a tougher foreign-exchange backdrop, and offset by “strategic pricing actions.” The company’s inventories fell 10%, as Wall Street seeks progress on efforts by businesses to narrow down their stockpiles of unsold goods.

Sales for Converse shoes were $588 million, down 9%, amid weaker demand in North America. Growth in Asia, however, acted as a counterweight to that decline.

Executives on Nike’s earnings call reported double-digit growth in China, and said they were taking a bigger share of the athletic-gear market there.

And they pointed to other sales drivers up ahead: The launch of NBA Star Devin Booker’s Book 1 sneaker, set to hit stores in December; new LeBron 21 sneakers; the new Sabrina 1s, named after WNBA star Sabrina Ionescu; and next year’s Paris Olympics.

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