- Q4 Sales and margins expected to fall
- China sales slump
- Turnaround likely to take time
Shares in Nike (NKE:NYSE) were indicated over 4% lower in premarket trading on Friday (21 March) after the sportwear giant said fourth-quarter sales to the end of May would decline by a steeper-than-expected mid-teens percentage.
The company also forecast a 4% to 5% drop in gross margin as it looks to reduce excess inventories of stale styles which are no longer resonating with customers.
Chief financial officer Matt Friend said: ‘We are also navigating through several external factors that create uncertainty in the current operating environment, including geopolitical dynamics, new tariffs, volatile foreign exchange rates and tax regulations, as well as the impact of this uncertainty and other macro factors on consumer confidence.’
CHINA BLUES
Third-quarter results actually beat analysts’ expectations with revenue falling 9% to $11.27 billion while earnings per share fell 30% to $0.54, also ahead of consensus.
However, China remains a worry for investors after sales in the region slumped 17% to $1.73 billion, missing analyst estimates of $1.84 billion, impacted by weak consumer spending and stiffer competition.
Chief executive Elliot Hill commented: ‘I spent some time over there in December. I hadn’t been over there in a while. The competition is a bit more aggressive than I remembered.’
President Trump has slapped 20% tariffs on goods imported from China and Nike works with hundreds of suppliers and manufacturers based in the country.
Nike did not say whether it would raise prices or explain how the new duties would affect margins.
JUST DO IT
Analysts at US broker Jefferies said: ‘Hill gets it...Nike needs to be Nike again, and he is putting that strategy back in place. Innovate on product, lead with sport, be loud with marketing, balance distribution, and do all of this with relentless urgency.
‘The playbook is simple but robust, the leader is rallying the troops at HQ and around the world to execute and wholesale partners are being treated as partners once again.’
The latest results suggest the turnaround initiated by ,Hill who returned as CEO in October 2024 after leaving the company in 2020, is likely to be a marathon rather than a sprint.
