Nike Stocks Fall On Lackluster Outlook, Slowing Sales In China

(CTN News) – Despite slower Chinese sales, Nike beat expectations on the top and bottom lines during its holiday quarter.

LSEG, formerly Refinitiv, surveyed analysts for its fiscal 2024 third quarter performance, based on what Wall Street expected:

• 77 cents versus 74 cents expected

• 12.99 billion vs. 122.8 billion expected

A year ago, the company reported net income of $1.24 billion, or 79 cents per share, for the three months ended Feb. 29. A restructuring charge of 21 cents would have reduced earnings to 98 cents.

$12.43 billion in sales, up from $12.39 billion a year ago. StreetAccount estimates sales rose about 3% to $5.07 billion in North America, against $4.75 billion estimates.

Other Nike regions came in below expectations. China sales reached $2.08 billion, just shy of analysts’ expectations of $2.09 billion. As demand normalizes after the Covid-19 lockdowns, revenues in the region increased 5%.

A 3% decline in EMEA revenue was reported by StreetAccount. Analysts had expected $2.09 billion in sales in China. Analysts had expected $1.69 billion in Asia Pacific and Latin America sales.

In response to Nike’s fiscal 2025 guidance, shares fell 7%.

According to LSEG, the company expects to increase revenue by 1% for fiscal 2024, excluding restructuring charges. According to LSEG, revenues will rise slightly rather than 2% as expected. A lower ocean freight rate, lower product input costs and improved supply chain efficiency will help Nike’s gross margins grow 1.6 to 1.8 percentage points, according to finance chief Matthew Friend.

Foreign exchange headwinds and higher markdowns offset Nike’s channel mix improvements. These shifts in mix are linked to how often consumers shop online versus in stores. It expects gross margins to rise 1.2 percentage points, less than analysts had predicted, according to Street Account. Nike expects revenue and earnings to grow in fiscal 2025. LSEG forecast revenue growth of 5.6%.

Nike “prudently plans” for revenue to fall low single digits in fiscal 2025.

Nike has been focusing on cutting costs and becoming more efficient in recent months as consumers cut back on discretionary items like clothes and shoes. Over the next three years, it plans to reduce costs by about $2 billion. As a result, it lowered its sales guidance. It announced two months later it would shed 2% of its workforce, or 1,500 jobs, to invest in its growth areas, such as running, women’s apparel, and Jordans.

Nike beat earnings expectations in the three months ended Nov. 30 because it simplified its assortment, trimmed management layers, and increased automation. For the second quarter in a row, it missed sales estimates. As a result of the cuts and “strategic pricing actions,” gross margin increased 1.7 percentage points, the first increase in at least six quarters.

Nike’s gross margin recovery continues. Gross margin grew by 1.5 percentage points to 44.8%, thanks to “strategic pricing actions and lower ocean freight costs.” However, higher product input costs and restructuring charges offset the gains.

Despite the growing competition in the sneaker and apparel categories, Nike is still regarded as a market leader. In addition to losing market share to legacy brands like Brooks Running and New Balance, analysts say its assortment has lost focus and innovation has slipped.

Earlier this month, Nike launched Book 1, its latest basketball shoes. Jane Hali & Associates reported that the release “looked more like a casual sneaker than a basketball shoe.” Since it’s unclear where is headed, senior analyst Jessica Ramirez is now neutral on long-term.

Nike has removed many products from its offering, indicating new styles are coming. Changes are still unclear.

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