Nike shoes and logo are seen in a store in Nice, France on May 28, 2024.
Jakub Porzycki | Photo only | Getty Images
Shares of Nike plunged on Thursday after the retailer cut its full-year forecast and said it expects sales to fall 10% in the current quarter as it warned of weak sales in China and “uneven” consumer trends around the world.
The expected 10% decline in the first quarter is well below the 3.2% decline expected by analysts, according to LSEG.
The sneaker giant now expects fiscal 2025 revenue to decline in the mid-single digits, compared with analyst estimates of a 0.9% increase. Nike had previously expected sales growth. The company also expects first-half sales to decline by a high-single-digit rate, compared with previous forecasts of low-single-digit declines.
“A comeback of this magnitude takes time,” Matthew Friend, the retailer’s chief financial officer, said in a call with analysts. “While the next few quarters will be challenging, we are confident that we will reposition Nike to be more competitive with a more balanced portfolio and drive sustainable, profitable and long-term growth.”
The company lowered its forecast as it contends with slower online sales, planned declines at traditional footwear stores, “increased macroeconomic uncertainty” in the Greater China region and “uneven consumer trends” in Nike markets, Friend said. Sales to wholesalers are also expected to be slower as the company scales new innovations and moves away from traditional franchises.
Shares fell about 11% in extended trading.
For the fiscal fourth quarter, the company significantly beat profit estimates as its cost-cutting efforts continued to bear fruit, but Nike fell short on revenue.
Here’s how Nike performed compared to Wall Street’s expectations during the period, based on an LSEG analyst survey:
- Earnings per share: $1.01 adjusted versus 83 cents expected
- Revenue: $12.61 billion versus expected $12.84 billion
The company’s reported net income for the three-month period ended May 31 was $1.5 billion, or 99 cents per share, compared with $1.03 billion, or 66 cents per share, a year earlier.
Revenue fell to $12.61 billion, down about 2% from $12.83 billion a year ago.
In fiscal year 2024, Nike reported revenue of $51.36 billion, which remained unchanged from the previous year. This is the slowest annual revenue growth the company has recorded since 2010, excluding the Covid-19 pandemic.
Nike executives attributed the sales failure to a number of factors. They said that the lifestyle business declined during the quarter and that momentum in the performance business, such as basketball and running shoes, was not enough to offset this.
Online performance was weak as Nike had a higher proportion of lifestyle products, more promotions and fewer sales of classic franchise products such as Air Force 1. China also saw a decline in traffic across all channels starting in April due to macroeconomic conditions in the region.
Despite the drop in traffic in China, sales in the region exceeded Wall Street expectations, coming in at $1.86 billion, compared with estimates of $1.79 billion, according to StreetAccount. It was the only geographic segment to exceed estimates for the period.
Sales in North America, its largest market, were $5.28 billion, below StreetAccount’s expectations of $5.45 billion.
In Europe, the Middle East and Africa, Nike reported sales of $3.29 billion, compared to estimates of $3.32 billion. In Asia Pacific and Latin America, Nike reported sales of $1.71 billion, compared to estimates of $1.77 billion.
Still, Friend later warned of the “weaker outlook” in China, saying that if Chinese market Tmall had not started the region’s 618 shopping holiday early, sales in the country would have fallen short of Nike’s internal expectations.
“The Chinese market remains highly competitive and we continue to carefully manage inventory for Nike and our partners,” Friend said. “Although our near-term outlook has deteriorated, we remain confident in Nike’s long-term competitive position in China.”
Nike’s Converse brand once again performed well in the overall result. The division’s revenue fell 18% to $480 million, primarily due to declines in North America and Western Europe.
Sneaker leader loses his crown
In recent months, the longtime leader in the sneaker and sportswear category has found itself in a difficult period, working to stay ahead of a number of emerging competitors. Sales growth has slowed, the company is being criticized for falling behind in innovation, and the company is in the process of scaling back its direct sales strategy, which has not produced the results the company expected.
As part of the strategy shift, Nike had worked to drive sales through its own website and stores rather than through wholesalers Foot LockerBut the company recently began pulling back on that initiative, telling CNBC in April that it had gone too far in moving away from wholesalers.
The strategy can be more profitable and give companies greater control over their brands and customer data, but it can also lead to logistical problems and create unexpected – and costly – problems.
For the quarter, Nike’s direct revenue was $5.1 billion, down 8% from the same period last year. Meanwhile, wholesale sales rose 5% to $7.1 billion, reflecting Nike’s change of heart on direct sales.
According to some analysts, the company’s focus on expanding its direct-to-consumer strategy has caused Nike to look away from innovation, the key characteristic that has long distinguished the company.
As the retailer continued to release old favorites like the Air Force 1, newcomers like On Running and Hoka wowed runners with brand-new designs—and won them over as customers.
Nike has announced that it will reduce the amount of products on the market in favor of new innovations, betting that a series of new models along with the 2024 Paris Olympics can put the company back on solid footing.
During the company’s earnings call, CEO John Donahoe said Nike is accelerating its plans to reduce offerings of classic franchises as brands have performed poorly online, which is expected to impact fiscal 2025 sales.
“We are meeting our near-term challenges head-on while making continued progress in the areas that are most important to NIKE’s future – serving the athlete through performance innovation, keeping up with the pace of the consumer and growing the overall market,” Donahoe said in a release. “I am confident that our teams will leverage our competitive advantages to create greater impact for our company.”
Some of Nike’s challenges are also beyond its control. The company has been grappling with a difficult macroeconomic environment where consumers have been cautious about purchasing sneakers, and it may also find itself on the wrong side of trends. Some analysts expect the overall athleisure category to experience a slowdown this year as denim makes a comeback among consumers and shoppers look to dress up after years of casual wear.
In the meantime, Nike has focused on cutting costs to at least be able to generate strong profits amid fluctuating sales.
In December, the company announced a major restructuring plan that would cut costs by about $2 billion over the next three years. Two months later, Nike announced that it would cut 2% of its workforce, or more than 1,500 jobs, to invest in its growth areas such as running, the women’s category and the Jordan brand.
—Additional reporting by CNBC’s Sara Eisen and Jessica Golden
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2024-06-27 23:04:17
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