Nike reported a good first fiscal quarter on Thursday, despite supply chain difficulties and decreased sales in Greater China, its third-largest revenue area.

However, after-hours trading saw a decline in Nike’s stock as the firm detailed issues with overstocked inventory levels and the aggressive measures it is taking to reduce them.

Nike and other retailers have been experiencing supply chain problems and store closure issues because to Covid.

Nike is experiencing supply chain challenges similar to other retailers, such as a recent increase in shipping costs and transit durations.

According to a Refinitiv survey of analysts, Nike fared in its first fiscal quarter relative to what Wall Street had predicted:

Earnings per share: 93 cents vs the anticipated 92 cents
Revenue: $12.69 billion versus the anticipated $12.27 billion

Retailers responded by placing inventory orders earlier than normal as delivery schedules and consumer demand increased this year. According to Nike CFO Matthew Friend, the rapid improvement in in-transit shipping time resulted in rising inventory.

The Nike executive observed that as a result of this and consumers’ increased economic insecurity, promotional activity has increased across the market, particularly for garment brands.

Friend stated on the conference call on Thursday that “as a result, we confront a new degree of complexity” and added that Nike will seek to reduce inventory for particular pockets of “seasonally late products,” particularly apparel.

According to Nike executives, inventories in North America increased by 65% from the previous year due to a mix of early holiday orders that are now expected to come earlier than anticipated and late deliveries for the previous two seasons.

As a result, there are currently multiple seasons’ worth of products available. We’ve decided to take that inventory and more aggressively liquidate it as a result, according to Friend, so that we can present the newest and best inventory to the consumer in the appropriate places.

When compared to the same period a year prior, Nike’s net income dropped 22% to $1.5 billion, or 93 cents per share, for the three months that ended on August 31.

In comparison to the same quarter last year, revenue increased by 4% to $12.7 billion.

Nike has recently changed its business strategy and is aiming to sell less sneakers and other products through wholesale partners like Foot Locker and more of them directly to consumers. The business reported on Thursday that its direct sales increased by 8% to $5.1 billion and that its digital-brand sales increased by 16%. Conversely, Nike’s wholesale division saw a 1% gain in revenues.

In its first fiscal quarter, Nike reported that their inventory increased 44% to $9.7 billion from the same period the previous year. The firm attributed this increase to supply chain difficulties, which were largely offset by high consumer demand.

Greater China’s overall sales were down 16% from about $2 billion a year ago to roughly $1.7 billion. The company has experienced economic disruption in the area as a result of Covid lockdowns. Nike had previously stated that it anticipated problems in Greater China to have an impact on its company.

Nike’s largest market, North America, had a 13% increase in overall sales to $5.5 billion in the first fiscal quarter from around $4.9 billion in the same quarter last year. The global leader in sneakers has often claimed that despite inflation, customer demand hasn’t decreased, particularly in the American market.

Despite supply chain and currency difficulties, the business said Thursday it anticipates revenue in the second fiscal quarter to expand by a low double digit rate due to robust customer demand.