An employee carries boxes of shoes at Footlocker retail store at Barton Creek Square Mall on August 28, 2024 in Austin, Texas.
Brandon Bell | Getty Images
Win on Tuesday it said it was withdrawing its full-year guidance and postponing its investor day as it prepares for a new CEO to take the helm.
Last month, the company announced that CEO John Donahoe would step down in October and be replaced by longtime company veteran Elliott Hill, effective October 14. Given the impending CEO change, the company decided to withdraw its full-year guidance and provide quarterly guidance for the balance of the year, executives said.
“This gives Elliot the flexibility to reconnect with our employees and teams, assess current strategies and business trends, and develop our plans to better position the business for fiscal ’26 and beyond,” said the chief finance Matthew Friend in a chat with analysts. .
When reporting fiscal fourth-quarter results in June, Nike lowered its guidance for fiscal 2025 and said it expected sales to be in the mid-single digits, after previously expecting them to increase. Friend said that since the start of the fiscal year, the company’s revenue expectations have moderated … given traffic trends on Nike Digital, market retail trends and final spring orders.
“We continue to see signs of slight improvement in the second half of our revenue trends compared to our first half,” Friend said. “As we plan to introduce and scale what’s new and innovative in the market, we now expect gross margins to decline compared to last year.”
Nike said it expects revenue in the current quarter to fall between 8% and 10% and gross margin to fall about 1.5 percentage points. That’s worse than the 6.9% drop in revenue expected by LSEG analysts.
It is also postponing its investor day, originally scheduled for November. It is unclear when the meeting will be rescheduled.
Shares fell about 5 percent in extended trading after the updates and after Nike reported mixed results for its fiscal first quarter.
Here’s how the world’s largest athletic shoe retailer fared compared to Wall Street’s expectations, based on a survey of analysts from LSEG:
- Earnings per share: 70 cents vs. 52 cents
- Annuity: $11.59 billion versus $11.65 billion
The company’s reported net income for the quarter ended Aug. 31 was $1.05 billion, or 70 cents a share, compared with $1.45 billion, or 94 cents a share, a year earlier.
Nike beat earnings expectations by 18 cents but lagged on revenue as it tries to fix its product mix and rework its approach to innovation.
Sales fell to $11.59 billion, down about 10% from $12.94 billion a year earlier.
Nike’s gross margin rose 1.2 percentage points in the quarter to 45.4 percent, higher than the 44.4 percent StreetAccount analysts had expected. However, profits fell by nearly 28% during the quarter.
Innovation
In the last year, Nike has been accused of lagging behind in innovation and ceding share to competitors as it focused on selling directly to consumers through its own websites and stores rather than through wholesalers such as Foot locker and DSW.
At first, the strategy was a boon to Nike’s profits and sales during the Covid pandemic, but as it escalated, it became more complicated and consumers began returning to stores and other in-person activities.
During the quarter, Nike Direct sales fell 13% to $4.7 billion, while Nike’s digital sales fell 15%.
Critics say Nike’s focus on direct sales has also led it to drive away innovation.
Under Donahoe’s leadership, the company grew annual sales by more than 31%, but it got there by developing legacy franchises like Air Force 1s, Dunks and Air Jordan 1s — not the groundbreaking styles that turned the company into a global powerhouse .
Sales for these legacy franchises are no longer driving sales the same way they once did, and as such, the company has worked to discontinue supply to increase demand and regain the feel-good factor.
During the first quarter, sales for these franchises declined more than overall activity. Online sales for the Air Force 1, Dunks and Air Jordan 1 combined were down nearly 50%. Only the Jordan brand saw a double-digit decline during the quarter, and the company expects it to decline at the same rate for fiscal 2025.
The company also expects total online sales to hit double digits in fiscal 2025.
Wholesale
Last year, Donahoe began to recognize that Nike needed is repairing its relationships with wholesalers, but the company’s board decided that Hill, who spent 32 years with Nike before retiring in 2020, would be the right person to lead its next chapter.
Hill is known to be well-regarded among Nike’s retail partners, so when he takes over later this month, he’ll have work to do to rebuild those relationships.
Wholesalers have spoken out in the past about Nike’s product line and how the same old recycled franchises weren’t doing enough to drive sales. They also work to keep their own inventory in line and have been careful about ordering excess products.
Nike’s wholesale revenue for the fiscal first quarter fell 8 percent to $6.4 billion.
“The multi-brand environment is very competitive today, and it will take time to expand market share. This was reflected in our spring ’25 order books, which were nearly flat year-over-year,” Friend said on the call profits. Order additions were “a little lighter” than expected.
The problem is compounded by the overall sneaker market, which is relatively stagnant in the US, and a slowdown in consumer spending on discretionary items such as new clothes and shoes.
US footwear sales are forecast to grow by just 2% in 2024 compared to 2023, after barely moving between 2022 and 2023, according to Euromonitor. Athletic footwear is expected to grow by about 5.6%, the company said.
In the most recent quarter, Nike footwear sales in North America fell 14% and apparel sales fell 10%.
Converse, which was acquired by Nike in 2003, is also weighing on the company’s overall performance. Sales fell 15 percent to $501 million during the quarter, but came in better than the $493 million analysts expected, according to StreetAccount.
China
Nike’s performance was also weighed down by the uneven economy in China, Nike’s third-largest market by revenue. Nike’s performance in China is often an indicator of the region’s economic health, and in late June, it warned of a “softer outlook” in the region.
During its first fiscal quarter, Nike posted revenue of $1.67 billion in the region, slightly higher than the $1.62 billion analysts were expecting, according to StreetAccount. However, traffic was “soft” in the region and Friend said Nike was “not immune” to China’s difficult consumer environment.
China’s central bank recently introduced it The biggest stimulus measures since the Covid pandemic, which are expected to give the region’s economy the much-needed boost.
Nike’s first fiscal quarter ended before those stimulus measures, but executives may be on the same page about sales performance in the current period.
Nike shares closed at $89.13 on Tuesday, down about 18% so far in 2024, significantly underperforming the S&P 500’s gains of about 20%.
