As increased prices for its shoes and clothing helped to overcome a knock from declining demand and ongoing cost constraints, Nike surpassed Wall Street expectations for first-quarter profit on Thursday. This caused its shares to increase by around 8% in extended trade.

On the strength of fewer planned markdowns and cheaper freight costs, the largest sportswear manufacturer in the world also predicted a 100 basis point rise in second-quarter gross margins, reversing six consecutive quarters of decreases.

Nike’s inventories decreased 10% in the three months that ended on August 31. This shows that the company was effective in getting rid of surplus inventory before the holiday shopping season, allaying investor concerns that Nike would be compelled to give investors hefty discounts.

“We will build on the consumer momentum around running and modern comfort,” Chief Financial Officer Matthew Friend said, adding the company would lean on its sneaker series such as Air Max 1, Infinity and V2K to cash in on the growing demand for running shoes.

According to Friend, the firm will also focus on its new Kobe brand while updating the look of its basketball shoe lineup across the Nike and Jordan brands.

Select investors are worried that Nike’s Jordan brand, a major source of revenue for the business, is “losing steam” as the price of select footwear declines on resale marketplaces like StockX.

As consumers turn to “performance” sneakers, Nike has also faced competition from other sneaker companies including Deckers’ Hoka, On Running, and French-owned sports retailer Salomon.

According to Dylan Dittrich, head of research for analytics company Altan Insights, several of Nike’s most recent running shoe releases, such as the Invincible 3 and Zoom Fly 5, were “not particularly well-received by reviewers.”

According to Nike CEO John Donahoe, the corporation will focus on “prioritising the everyday runner” and connecting with customers through more channels, such as specialised running shops.

The business kept its annual projections the same and predicted a modest increase in revenue for the second quarter. According to LSEG statistics, analysts had predicted a 2.1% increase to $13.59 billion.

“Nike has showed that it has pricing power … (and) will be able to avoid really severe discounting compared to some others (in the holiday season) this year. It’s in better shape,” Morningstar senior equity analyst David Swartz said.

Analysts’ expectations of $12.98 billion were not met by the corporation, which reported total sales of $12.94 billion for the quarter.

In contrast to expectations of 75 cents per share, Nike declared a profit of $1.45 billion, or 94 cents per share.

(Adapted from RTE.ie)