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NEW YORK: Nike reported a drop in quarterly profits Thursday despite higher sales due to the drag from increased costs and the liquidation of unwanted merchandise.

The sports giant reported profits $1.0 billion for the quarter ending May 31, down 28 percent from the year-ago period.

Revenues rose five percent to $12.8 billion.

Nike notched lower profit margins in the period, citing factors that included “higher product input costs and elevated freight and logistics costs” and “higher markdowns.”

Nike beats profit estimates

As with giant retailers such as Walmart and Target, Nike has undertaken sales over the last year to discount underselling merchandise in the wake of Covid-19 supply chain difficulties that resulted in delayed shipments.

But Chief Executive John Donahoe told analysts the action would situate the company for greater profitability in the future.

Neil Saunders of GlobalData said Nike is a “solid brand,” but that it needed to rethink its inventory management and reestablish more relationships with third-party vendors, as it has recently with Macy’s. The company has been emphasizing direct sales in recent years.

“Unfortunately, Nike is facing the headwind of slower demand for sneakers and apparel which is pushing down wholesale orders, driving up inventory, and necessitating more marketing and promotional efforts to drive volume,” Saunders said.

“This has coincided with the usual cocktail of higher costs that is impacting all retailers. Taken together, these things are putting a squeeze on the business.”

Saunders warned that “further markdowns” would be needed, “which will heap further pain on the bottom line.”

Shares of Nike tumbled 4.2 percent to $108.65 in after-hours trading.

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