Nike 2Q better than expected, though discounting to reduce inventory continues as it pushes on with business reset For the 3 months to Nov 30th, Nike reported revenues down 8% (consensus 10%) or down 9% at constant FX. Note Cyber Week shifted into Q3. Earnings were 78c (FactSet consensus 63c). NIKE Direct was down 14%CC (Digital down 21%/stores down 2%) with Wholesale down 4%. Gross margin (down 100 bps) impacted by higher markdown on NIKE Direct, wholesale discounts to liquidate inventory and channel mix headwinds, partially offset by lower product costs and strategic pricing actions. Traffic and retail sales were below expectations in September and October, with momentum building in November. In North America, Black Friday Week was NIKE’s largest demand week ever on Nike Digital, with sales up double-digits, but its offprice mix was up high single-digits versus the prior year. In North America, Q2 revenue was down 8%. NIKE Direct declined 15% (Digital down 22%/Stores down 3%) with Wholesale down 1%. In EMEA, Q2 revenue declined 10% with NIKE Direct down 20% (Digital down 32%/Stores up 3%) with Wholesale down 4%. EMEA is the first region where NIKE Digital was repositioned as a premium platform, resulting in better full-price realisation and a strong double-digit decline in off-price sales. Inventory levels remain higher than management would like, with elevated supplies in North America and China offset by declines in EMEA & APLA. Partner-owned inventory was down YoY. Having pulled FY guidance in October, management stuck with quarterly guidance. Q3 revenue guidance is to be down low double-digit. Q4 headwinds from strategic change will be greater than Q3, with plans to accelerate inventory liquidation actions in 2H. Supply will continue to be reduced in classic franchises, so the summer order book is expected to be down. Positive mood music for wholesale partners like JD from NIKE’s new CEO New CEO, Elliot Hill, said his priority was to clear stock, reignite the range by leading with sport, and put the athlete back at the heart. The good news for Wholesale partners like JD Sports is that he emphasised the focus is on getting back to a healthy marketplace and a full-price business for partners and NIKE Direct. He is looking to elevate the entire marketplace and create a foundation for growth. He talked about how the previous management’s focus on prioritising digital had impacted the health of the marketplace. He also talked about returning to a pull marketplace for its largest classic franchises and to become less promotional (NIKE Direct started the year at just 50% full price). This will take time. Continued overleaf