Nike shoes and logo at a store in Nice, France on May 28, 2024.
Jakub Purzycki | Nour Photo | Getty Images
Shares of Nike It fell on Thursday after the retailer cut its full-year guidance and said it expects sales to fall 10% during 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 much lower than the 3.2% decline that analysts had expected, according to LSEG.
The sneaker giant now expects fiscal 2025 sales to decline in the mid-single digits, compared with analysts’ estimates of a 0.9% increase. Nike previously forecast sales to grow. The company also expects first-half sales to decline in the high single digits, compared with its previous guidance for low single digit declines.
“A comeback of this magnitude takes time,” Nike’s chief financial officer, Matthew Friend, said on a call with analysts. “While 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.”
Friend said the company lowered its guidance as it grapples with slowing online sales, planned declines in classic footwear franchises, “increased macro uncertainty” in Greater China and “uneven consumer trends” across Nike’s markets. It also expects sales to wholesalers to be slower as new innovations expand and classic franchises are phased out.
Shares fell about 11% in extended trading.
For the fiscal fourth quarter, the company easily beat earnings estimates as its cost-cutting efforts continued to pay off, but Nike fell short of revenue.
Here's how Nike performed during the period compared to what Wall Street was expecting, based on a survey of analysts conducted by the London Stock Exchange Group:
EPS: $1.01 adjusted vs. 83 cents expected Revenue: $12.61 billion vs. $12.84 billion expected
The company reported net income for the three months ended May 31 of $1.5 billion, or 99 cents per share, compared with $1.03 billion, or 66 cents per share, a year earlier.
Sales fell to $12.61 billion, down about 2% from $12.83 billion a year earlier.
In fiscal 2024, Nike reported sales of $51.36 billion, flat from the previous year. It's the slowest annual sales growth the company has seen since 2010, excluding the COVID-19 pandemic.
Nike executives attributed the sales loss to a combination of factors. They said its lifestyle business declined during the quarter and that momentum in performance businesses, such as basketball and running shoes, wasn’t enough to offset that.
Online performance was weak because Nike had a larger share of lifestyle products, more promotions and fewer sales of classic franchises, such as the Air Force 1. It also saw a decline in traffic in China across all channels starting in April due to macroeconomic conditions in Region.
Despite the decline in traffic in China, sales in the region exceeded Wall Street expectations, according to StreetAccount, at $1.86 billion, compared to estimates of $1.79 billion. This was the only geographic sector to receive the highest ratings for this period.
Sales in North America, its largest market, were $5.28 billion, below StreetAccount's forecast of $5.45 billion.
In Europe, Middle East and Africa, Nike generated revenue of $3.29 billion, compared to estimates of $3.32 billion. In Asia Pacific and Latin America, Nike generated sales of $1.71 billion, compared to estimates of $1.77 billion.
However, Friend later warned of a “softer outlook” in China, and said that had it not been for T-Mall's early start to the region's 618 shopping holiday, sales in the country would have fallen short of Nike's internal forecasts.
“The Chinese market continues to see significant promotional activity, and we continue to carefully manage Nike and its partner inventory,” Friend said. “While our near-term outlook has diminished, we remain confident in Nike’s long-term competitive position in China.”
Once again, Nike's Converse brand significantly underperformed overall results. The division's revenues fell 18% to $480 million, largely due to declines in North America and Western Europe.
The sneaker leader loses his crown
Over the past few months, the company, long a leader in the sneaker and athletic apparel category, has found itself in a tough spot, working to stay ahead of a host of emerging competitors. Its revenue growth has slowed, it has been criticized for lagging innovation, and it is in the process of retreating from a direct sales strategy, which has failed to produce the results the company expected.
Under the strategic shift, Nike has been working to drive sales through its website and stores rather than through wholesalers such as Foot lockerBut it has recently begun to back away from that initiative, telling CNBC in April that it had gone too far when it moved away from wholesalers.
This strategy can be more profitable and give companies better control over their brands and customer data, but it can also create logistical headaches and come with unexpected and costly hurdles.
During the quarter, Nike’s direct revenue was $5.1 billion, down 8% from the same period last year. Meanwhile, wholesale revenue rose 5% to $7.1 billion, reflecting Nike’s shift in its approach to direct selling.
According to some analysts, the company's focus on building its own direct sales strategy has led Nike to take its eyes off innovation — a key trait that has made the company stand out for so long.
As retailers produce more and more old favorites, like the Air Force 1, upstarts like On Running and Hoka are wowing runners with entirely new designs — and snatching them up as customers.
Nike Inc. said it will reduce the amount of products it has on the market in favor of new innovations, betting that a raft of new styles, coupled with the 2024 Paris Olympics, can put the company back on a solid footing.
During the company's conference call, CEO John Donahoe said Nike is accelerating its plans to reduce supply of classic franchises because the brands have been performing poorly online, which is expected to impact fiscal 2025 revenue.
“We are facing our near-term challenges head on, while making continued progress in the areas that matter most to Nike's future – serving athletes through performance innovation, moving at the pace of the consumer and growing the entire market,” Donahue said. In release. “I am confident that our teams are consolidating our competitive advantages to create greater impact for our business.”
Some of Nike’s challenges are also beyond its control. It has faced a tough macroeconomic environment that has led to consumers pulling back on sneakers, and it may also find itself on the wrong side of the trend. Some analysts expect the athletic category as a whole to slow this year as denim makes a comeback as consumers and shoppers look to dress up after years of wearing designer clothes.
Meanwhile, Nike has focused on cutting costs so it can at least maintain strong profits in the face of sluggish sales.
In December, it announced a sweeping restructuring plan to cut costs by about $2 billion over the next three years. Two months later, Nike said it would cut 2 percent of its workforce, or more than 1,500 jobs, so it could invest in growth areas like running, women’s and the Jordan brand.
—Additional reporting by CNBC's Sarah Eisen and Jessica Golden
