Nike Shares Plunge After Cutting Full-Year Guidance

Nike's Shares Plunge After Cutting Full-Year Guidance | Enterprise Wired

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Source – CNBC

Nike’s stock took a significant hit on Thursday, dropping 11% in extended trading after the company slashed its full-year guidance and warned of a 10% decline in sales for the current quarter. The retailer cited soft sales in China and uneven consumer trends worldwide as major factors affecting its performance.

Revised Sales Projections

Nike now anticipates fiscal 2025 sales to decrease by mid-single digits, a stark contrast to the previously expected growth. Analysts had forecasted a modest 0.9% increase in sales, but the company’s updated outlook reflects a more challenging market environment. The first-half sales are projected to decline by high single digits, deviating from earlier guidance of low single-digit drops.

Matthew Friend, Nike’s CFO, acknowledged the difficulties ahead but expressed confidence in the company’s long-term strategy. “A comeback at this scale takes time,” Friend noted. “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.”

Factors Behind the Slump

Several issues have contributed to Nike’s revised outlook. The company is grappling with slower online sales, planned reductions in classic footwear franchises, and increased macroeconomic uncertainty in Greater China. Additionally, Nike expects slower sales to wholesalers as it focuses on scaling new innovations and pulling back on older models.

Despite these challenges, Nike’s fourth-quarter earnings exceeded expectations, thanks to ongoing cost-cutting efforts. The company’s net income for the quarter ending May 31 was $1.5 billion, or 99 cents per share, up from $1.03 billion, or 66 cents per share, the previous year. However, revenue fell to $12.61 billion, a 2% decrease from $12.83 billion a year earlier.

Regional Performance and Strategic Shifts

Nike’s regional sales showed mixed results. In China, sales were higher than Wall Street predictions, coming in at $1.86 billion compared to the expected $1.79 billion. However, sales in North America, Europe, the Middle East, and Africa fell short of estimates. The Converse brand, in particular, underperformed with an 18% revenue drop to $480 million.

Nike’s recent strategy shift has involved moving away from a direct sales focus, which had not yielded the anticipated results. Direct revenues for the quarter were $5.1 billion, down 8% from the previous year, while wholesale revenue rose 5% to $7.1 billion. This adjustment reflects the company’s renewed emphasis on wholesaler partnerships.

CEO John Donahoe highlighted Nike’s commitment to innovation and adapting to consumer trends. “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.

Looking Ahead

Nike is focusing on reducing its product range and emphasizing new innovations to regain its competitive edge. The upcoming 2024 Paris Olympics is expected to boost the company’s performance. Despite macroeconomic headwinds and shifting consumer preferences, Nike is determined to navigate these challenges and position itself for long-term growth.

As part of its cost-cutting measures, Nike announced a restructuring plan in December to save $2 billion over three years and a workforce reduction of 2% to invest in growth areas like running, the women’s category, and the Jordan brand. The company remains focused on delivering strong profits amid unsteady sales and adapting to the evolving market landscape.

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