Customers shop at a Nike store in a mall in Los Angeles, November 8, 2024.
Frederick J. Brown | AFP | Getty Images
Nike The turnaround will take a little longer than expected under new CEO Elliott Hill, who outlined his strategy to return the company to growth on Thursday after the retailer blamed deep discounting for falling revenues and profits.
The sneaker giant relies on promotions to drive sales, and plans to return its online business to a full-price model, but first, it will need to aggressively liquidate old inventory through “less profitable channels,” Hill and the CFO said. A friend died.
“What I've seen is that Nike's direct traffic, both digital and physical, has declined because we lack freshness in the products and don't offer inspiring stories,” Hill said. “The result is that we have become very promotional… Entering the year, our digital platforms were offering almost 50/50 off full price promotional sales. The level of markdowns is not only impacting our brand, but also disrupting the overall market and our partners' profitability.”
As a result, Nike expects gross margins to decline between 3 and 3.5 percentage points during the holiday quarter. It also expects sales to fall to the low double digits, which is worse than analysts polled by LSEG expected.
While expectations were low for Nike's fourth quarter ahead of Thursday's release, the sneaker giant easily beat Wall Street expectations on the top and bottom lines.
Here's what Nike did in the fiscal second quarter of 2025 compared to what Wall Street expected, based on a survey of analysts conducted by LSEG:
Earnings per share: 78 cents vs. 63 cents expected Revenue: $12.35 billion vs. $12.13 billion expected
Nike shares initially rose after the results but pared gains after Hill made his opening remarks on a conference call with analysts.
Nike's reported net income for the three-month period ending November 30 fell to $1.16 billion, or 78 cents per share, compared with $1.58 billion, or $1.03 per share, a year earlier.
Sales fell to $12.35 billion, down about 8% from $13.39 billion the previous year.
Hill, who started with Nike as an intern in the 1980s before leaving the company in 2020, was tasked with turning around the world's largest sportswear company after it fell behind on innovation, ceded market share to rivals and sabotaged its own sales strategy.
“I have an irrational love for this company,” Hill said in his opening remarks to analysts. “I know Nike inside and out, I'm proud of what the brand stands for, and I want to see the company succeed.” “At a time when our team, our brand and our business are facing challenges, my sole focus is to help get us back on track, back to winning.”
Elliot Hill, President and CEO of Nike, Inc.
Courtesy: Nike
In his opening remarks, Hill delivered a resounding rebuke of the strategies that had come to define his predecessor John Donahue's tenure as CEO.
He said the company spent too many of its resources focusing on increasing online sales, paying for performance marketing, and isolating wholesale partners — strategies he now plans to eliminate. He acknowledged that key wholesale partners feel Nike has turned its back on those partnerships, and said the company is now working to rebuild their trust.
“We know our sales teams will have to earn every 'buyable' dollar, but we're investing to make sure our associates feel supported,” Hill said. “We will do more than just sell our products. We will actively support win-win sales. Simply put, we win when our partners win.”
This is good news for partners like Foot locker, JD Sports and Dick's sporting goodswhich relies on Nike products to increase sales.
Hill also pointed to the criticism that has swirled around Nike over the past couple of years: that the company has lost sight of what has long defined the brand — athletes and performance — ceding market share to competitors like Asics, OnRunning and Nike. Hoka.
“We've lost our obsession with sports,” Hill said. “Relying on a handful of sportswear silhouettes does not represent who we are.”
Hill appears to be referring to the company's previous decision under Donahue to focus growth on three main franchises — Air Force 1s, Dunks and Air Jordan 1s. For years, it was those lifestyle brands that drove sales, but Nike made so many shoes that they became common and uncommon. As a result, Nike is trying to cut supply, which it said will impact sales in the short term, but hopefully not in the long term.
Sports shoes sales
During the most recent quarter, Nike in-store and online sales declined 13% while wholesale revenue declined 3%. The steep discount contributed to a 1 percentage point drop in gross margin, which came to 43.6%, slightly better than the 43.3% StreetAccount analysts had expected.
Inventory, another area of concern, was flat compared to the previous year at $8 billion. Units rose, but this was offset by lower product input costs and a shift in product mix.
Inventories are still higher than the company wants them to be, especially in light of “recent sales trends,” Friend said.
While Nike saw sales decline in all four of its geographic regions, results were better than expected in all regions except China, which saw sales decline 8% to $1.71 billion, below StreetAccount's forecast of $1.75 billion.
In North America, Nike saw sales of $5.18 billion, down 8% but ahead of the Street's forecast of $5.01 billion. In Europe, the Middle East and Africa, sales fell 7% to $3.30 billion, slightly above StreetAccount's forecast of $3.26 billion. In Asia Pacific and Latin America, sales fell 3% to $1.74 billion, beating analysts' expectations of $1.62 billion.
Converse, which was acquired by Nike in 2003, also dragged down the company's overall performance, with sales falling 17% during the period to $429 million, well below the $462.6 million expected by analysts surveyed by StreetAccount.
Nike's shift away from Dunks and Air Force 1s as well as its deep discounts have also affected Foot Locker, which beat Wall Street's estimates on top- and bottom-line results in its third-quarter report on Dec. 4, in part due to weak demand for Nike products. Its CEO, Mary Dillon, told CNBC at the time.
Since Hill took office a little more than two months ago, he has notched some victories. The National Football League announced on December 11 that it had renewed its contract with Nike after briefly reaching out to other suitors. Amid criticism for falling behind on innovation and ruining Major League Baseball's uniform release, the NFL's decision to renew its contract with Nike through 2038 was a major vote of confidence.
Now, Nike is the exclusive uniform provider for the NFL, MLB, and NBA.
Nike shares were down about 27% in 2024 as of Wednesday afternoon, compared with a roughly 27% gain for the S&P 500.
