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Nike shares plunge after retailer says quarterly sales will…
Nike shoes and logo are seen at a store in Nice, France on May 28, 2024.
Jakub Porzycki | Nurphoto | Getty Images
Shares of Nike plunged on Thursday after the retailer cut its full-year guidance and said it expects sales to drop 10% during its current quarter as it warned of soft sales in China and “uneven” consumer trends across the globe.
The expected 10% first-quarter slump is far below the 3.2% drop that analysts had expected, according to LSEG.
The sneaker giant now expects fiscal 2025 sales to be down mid-single digits, compared to analyst estimates of a 0.9% increase. Nike previously expected sales to grow. The company also expects sales in the first half to be down in the high single digits, compared to previous guidance of declines in the low single digits.
“A comeback at this scale takes time,” the retailer’s finance chief Matthew Friend said on a call with analysts. “Although the next few quarters will be challenging, we are confident that we are repositioning Nike to be more competitive with a more balanced portfolio to drive sustainable, profitable, long-term growth.”
The company cut its guidance as it contends with slower online sales, planned declines in classic footwear franchises, “increased macro uncertainty” in the Greater China region and “uneven consumer trends” across Nike’s markets, Friend said. It also expects sales into wholesalers to be slower as it scales new innovations and pulls back on classic franchises.
Shares plunged roughly 11% in extended trading.
For the fiscal fourth quarter, the company handily beat earnings estimates as its cost-cutting efforts continue to bear fruit, but Nike fell short on revenue.
Here’s how Nike did during the period compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: $1.01 adjusted vs. 83 cents expected
- Revenue: $12.61 billion vs. $12.84 billion expected
The company’s reported net income for the three-month period that 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.
Sales dropped to $12.61 billion, down about 2% from $12.83 billion a year earlier.
In fiscal 2024, Nike posted sales of $51.36 billion, which is flat compared to the prior year. It’s the slowest pace of annual sales growth the company has seen since 2010, excluding the Covid-19 pandemic.
Nike executives attributed the sales miss to a range of factors. They said its lifestyle business declined during the quarter and that momentum in its performance business, such as its basketball and running shoes, wasn’t enough to offset it.
Online performance was soft because Nike had a higher share of lifestyle products, more promotions and fewer sales of classic franchises, such as its Air Force 1. It also saw traffic in China decline across all channels beginning in April due to macro conditions in the region.
Despite the traffic decline in China, sales in the region exceeded Wall Street expectations, according to StreetAccount, coming in at $1.86 billion, compared with estimates of $1.79 billion. It was the only geographical segment to top estimates for the period.
Sales in North America, its largest market, came in at $5.28 billion, below StreetAccount expectations of $5.45 billion.
In Europe, Middle East and Africa, Nike posted revenue of $3.29 billion, compared to estimates of $3.32 billion. In Asia Pacific and Latin America, Nike saw $1.71 billion in sales, compared to estimates of $1.77 billion.
Still, Friend later warned of the “softer outlook” in China and said had it not been for Chinese marketplace Tmall’s early start to the region’s 618 shopping holiday, sales in the country would’ve fallen short of Nike’s internal expectations.
“The China marketplace remains highly promotional, and we continue to manage both Nike and partners’ inventory carefully,” said Friend. “While our outlook for the near term has softened, we remain confident in Nike’s competitive position in China in the long term.”
Nike’s Converse brand was once again a significant underperformer in the overall results. The division saw revenue plunge 18% to $480 million, largely due to declines in North America and Western Europe.
Sneaker leader loses its crown
Over the last few months, the longtime leader of the sneaker and athletic apparel category has found itself in a rough patch, working to stay ahead of a slew of upstart competitors. Its revenue growth has slowed, it’s been criticized for falling behind on innovation and it’s in the process of walking back its direct-sales strategy, which failed to produce the results the company had anticipated.
Under the strategy shift, Nike had been working to drive sales through its own website and stores rather than through wholesalers like Foot Locker, but it recently began walking back that initiative, telling CNBC in April that it went too far when it moved away from wholesalers.
The strategy can be more profitable and gives companies better control over their brands and customer data, but it can also create logistical headaches and come with unexpected — and costly — hiccups.
During the quarter, Nike direct revenues came in at $5.1 billion, down 8% compared to the prior year period. Meanwhile, wholesale revenue was up 5% to $7.1 billion, reflecting Nike’s change of heart on direct selling.
According to some analysts, the company’s focus on building out its direct sales strategy led Nike to take its eyes off of innovation — the main attribute that had long made the company stand out.
As the retailer churned out more and more old favorites, such as the Air Force 1, upstarts like On Running and Hoka wowed runners with brand new designs — and snatched them up as customers.
Nike has said that it would reduce the amount of products it had on the market in favor of new innovations and is betting that a suite of new styles, along with the 2024 Paris Olympics, can get the company back on solid footing.
During the company’s conference call, CEO John Donahoe said Nike was accelerating its plans to reduce supply of classic franchises because the brands had performed poorly online, which is expected to affect fiscal 2025 revenue.
“We are taking our near-term challenges head-on, while making continued progress in the areas that matter most to NIKE’s future — serving the athlete through performance innovation, moving at the pace of the consumer and growing the complete marketplace,” Donahoe said in a release. “I’m confident that our teams are lining up our competitive advantages to create greater impact for our business.”
Some of Nike’s challenges are also outside of its control. It has contended with a rough macroeconomic environment that’s seen consumers pull back on sneakers purchases, and it also may be finding itself on the wrong side of trends. Some analysts expect the overall athletic category to face a slowdown this year as denim makes a comeback with consumers and shoppers look to dress up after years of dressing down.
In the meantime, Nike has focused on cutting costs so it can at least deliver strong profits against unsteady sales.
In December, it announced a broad restructuring plan to reduce costs by about $2 billion over the next three years. Two months later, Nike said it was shedding 2% of its workforce, or more than 1,500 jobs, so it could 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
