Melissa Gonzalez, principal at MG2 and the founder of The Lionesque Group, joined Cheddar News to discuss Nike's earnings report.

Nike’s sales in China, its third biggest market by revenue, have fallen 16 percent from what it was last year. Melissa Gonzalez, principal at MG2 and the founder of The Lionesque Group, joined Cheddar News to discuss the sneaker giant's earnings report and how "prudent" and "crafty" it will be in dealing with its inventory piling up.

Nike Stock Takes a Hit Following Falling Sales in China

now joining us to discuss this is Melissa Gonzalez principal at M. G. Two and founder of the Lioness Group Melissa. Thanks so much for joining us this morning. Can I can get past this inventory and supply chain challenges here. I think so I think that they're you know they're going to be extremely prudent um and crafty and the way in which that they go through the supply chain. Um And I think they're also going to be savvy in the way in which they lean to the opportunities that uh the Nike resale marketplace. Um And maybe this is an opportunity for them to versus leaning into just discounting but um having enough inventory to really have a robust presence in this secondary market and competition with some of the other companies out there like a stock X. Or a goat. Um And really having the opportunity to own that and own that narrative. I do want to circle back to that secondary market in a little bit. But first let's talk about China because Nike's total sales in greater China were down 16% to about $1.7 billion. How concerning is this given that China is Nike's third biggest market by revenue, they are the third biggest market by revenue. And there's probably gonna be a little bit of headwinds ahead of us with that market. But on the flip side I think we can look at the strength that they've seen in the U. S. Market. And so I think it's gonna be really watching how they're balancing that all out. Especially they continue to push into their move into D. C. And that outweighing their wholesale partnerships. How many investors did think that Nike's growing direct to consumer business would hold up its margins here. But obviously we have inventory surging. Are you surprised that at the bigger hit these margins didn't take, Am I surprised at the hit? Yes. Yeah. I mean I I am I you know, I didn't expect it to be that much of a hit and for sure the inventory levels are surprising as well. Um but it's also not uncommon when businesses make shifts right and the percentage of their business that exists in wholesale versus direct to consumer um takes a level of investment and the benefit of that investment often have a longer time horizon. So I think we we will need to continue to watch closely to see how some of those things are paying off. But as they move into wholesale into D. Two C. D. Two C has better margins longer term but they have to make investments and they have their own brand owned stores and they're launching new concepts there also um investing highly in other initiatives to have brand own moments like the metaverse. And so it's really, I think looking a little bit in the longer term horizon versus where they're at today and then also today just knowing that they're against a lot of macro macro trend headwinds melissa, thank you so much for your time today. Unfortunately we're out of time, but we would love to have you on in the future to discuss more about this. That's Militia Gonzalez principle of MG two and founder of the Lioness Group.