Nike Inc. executives gave a cautious outlook and warned about elevated consumer anxiety, adding to investor concerns about the sportswear company’s painfully slow turnaround.
“We are not expecting the environment to improve meaningfully over the next six months,” Matt Friend, Nike’s outgoing chief financial officer, said Tuesday on a call with investors. Customers are “under pressure around the world, and we can particularly see it having a larger impact on sportswear,” he added.
Nike expects a slowdown in the coming quarter compared to the current period, citing the timing of wholesale shipments in North America among other factors.
The shares fell as much as 4.2% in premarket trading in New York on Wednesday. The downbeat commentary offset better-than-expected sales and profit in the latest quarter.
Chief Executive Officer Elliott Hill has led Nike for almost two years and progress toward recapturing growth has dragged on, sparking frustration. Management faces ever-growing pressure to produce results, with the company’s stock down 36% this year through Tuesday’s close, putting the shares on track for a fifth consecutive annual decline.
Sales Weakness Persists | Nike posted another decline in revenue in the latest quarter
The ongoing weakness “adds to the sense that Nike’s problems are more deep-seated than previously acknowledged and that, consequently, the turnaround is taking much longer than anticipated,” Neil Saunders, managing director of GlobalData, wrote in an email.
Investor patience is being especially tested by persistent softness in Greater China, where results were in line with expectations but still down 12% from a year earlier. Competition in the market, which is one of Nike’s largest, has intensified, while consumers have moved toward local brands amid rising costs.
Nike is executing a “comprehensive reset” in Greater China, Hill said on the call. The company is “taking a more local approach to product creation,” and is working with partners to “be more premium, more culturally connected and move at the speed of Chinese consumers.”
With overall sales still falling, the recovery will take longer as Nike seeks to clear excess inventories of sportswear, streetwear, Jordan-branded products and goods in China, Bloomberg Intelligence analyst Poonam Goyal said in a note.
Investors will probably still question whether Nike has “‘ripped the Band-Aid’ on earnings revisions,” Guggenheim analyst Simeon Siegel said. He reduced the target price on Nike stock to $60 from $74.
Sports Focus
Revenue at Converse plunged 32% in the fourth quarter. Its full-year sales were the lowest since 2011.
That “raises the question of whether Nike actually has the bandwidth and will to fix the brand,” Saunders said. “If it doesn’t, it should look for an exit strategy to save Converse from becoming a drain on resources and management time.”
Hill’s strategy has centered on sharpening Nike’s focus around individual sports, such as basketball and running. While the brand has made progress, it’s had missteps such as a Boston Marathon ad that was pulled after criticism, and some of its World Cup inventory didn’t get to retailers on the expected timeline.
Nike may be getting a boost from the World Cup. It has sold more than double the amount of tournament-related merchandise at this point compared to the 2022 event, Cristina Fernandez of Telsey Group said in a note. Nike is hoping stars like France’s Kylian Mbappé and Erling Haaland of Norway keep scoring high-profile goals after the two nations advanced to the round of 16.
Earlier this month, Nike said that David Denton, chief financial officer of Pfizer Inc., will assume that role in August. He’ll take over from Friend, who will stay at Nike through Sept. 4. Nike will host an investor event on Nov. 16 and 17.
Written by: Lily Meier — With assistance from Marc Davies, Kaitlyn Pohly, Tim Loh, Subrat Patnaik, and Iain Rogers @Bloomberg
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