The Swoosh, which will commence its 50th anniversary in May, exceeded revenue and diluted earnings per share guidance in the third quarter ended Feb. 28 despite persistent product transit woes into the North America market and marketplace demand that exceeded available supply.

On the physical retail front, Nike is initiating the second phase of its strategy with key wholesalers, whose number has been slashed in half over the last four years and preparing to launch a series of mono-branded stores focused on Jordan, apparel, and women’s. The doors, expected in the 5,000- to 6,500-sq.-ft. range are described as investments “to specifically address gaps in distribution” where growth opportunities exist. Nike is expected to test and modify the respective banner’s formats before ramping up the concepts in 2024 and 2025. The company is set to begin testing a Jordan-only retail concept in the latter half of 2022, a consumer retail experience that has already proven popular in China, the Philippines and Korea.

Net sales grew by 5 percent to $10,871 million in the third quarter, some 2.5 percent above the consensus estimate of $10.62 billion, but net profit slipped by 4 percent to $1,396 million, with diluted EPS down 3 percent to $0.87 but above a consensus estimate of $0.72. Gross margin inched higher to 46.6 percent from 45.6 percent. Demand creation costs rose 20 percent to $854 million as operating overhead costs ticked 11 percent higher to more than $2.58 billion. Wholesale revenues inched 1 percent higher on a currency-neutral basis. Inventories were up 15 percent to $7.7 billion at period end with transit times to North America worsening. The company, however, has taken actions to lower its transit delay impact by four weeks compared to industry averages.

Nike Direct sales rose 17 percent on a currency-neutral basis to $4.6 billion led by 27 percent improvement in North America where digital sales rose 33 percent year-over-year on double-digit growth in traffic, increases in membership and engagement and higher member-buying frequency. Sales owned stores, bolstered by higher traffic levels, rose 14 percent. Nike Digital sales lifted 22 percent higher and now represent 26 percent of total Nike brand revenues. The digital revenue increase was fueled by double-digit expansion in EMEA, North America and APLA that was partially offset by a decline in China.

North American EBIT came in flat on a 9 percent revenue jump to $3.88 billion and an 11 percent gain in apparel sales to more than $1.2 billion and double-digit sales improvement in key men’s running franchises such as the Pegasus and product updates to the Winflow and Vomero. Nike Direct sales rose 27 percent year-over-year, led by a 33 percent y-o-y jump in Nike Digital. The digital business in North America represented one-third of the geography’s sales during the period as revenues from Nike-owned stores increased 16 percent on improved traffic trends and activations in key cities such as Los Angeles during the Super Bowl.

CEO John Donahoe says Nike has many production innovations coming through its pipeline over the next 3-12 months, including the Dri-FIT Alpha Bra and the ISPA Link, a new proprietary platform where shoes are built with interlocking modules and connected without any glue, that is due at retail in June.

The current financial year outlook calls for mid-single digit topline growth for the 12 months ending May 31 despite an expected decline in fourth quarter North American sales due to difficult comparisons. Annual gross margins are forecast to rise at least 1.5 percent on fuller price selling and low markdown rates. Conversely, the benefit of a low-single-digit price increase later this year for the Spring/Summer 2023 season will be partially offset by higher input product and supply chain costs and strategic actions tied to expediting product deliveries into North America. The company will provide more clarity about its 2023 business during its fourth quarter earnings call.