- Q4 revenue shy of expectations
- Full year 2025 outlook lowered
- North America and digital sales disappoint
Nike (NKE:NYSE) continues to look flat footed after warning investors to expect its slowest sales growth since 2010, barring the pandemic. Out of hours trading data shows the stock plunging nearly 14% to around $80, not half 2021’s near-$180 dollar peaks.
It may be the world’s biggest sportswear company but Nike is feeling the pinch as competition bites and sales in China and its US backyard flag, forcing the firm to cut full year 2025 (to end May) guidance. Less swoosh, more damp squib, and AJ Bell’s investment director Russ Mould believes a reckoning is looming.
‘A lot now rests on an investor day in November, with the company likely to face pressure to take radical action’, he says.
Shares in key UK retail partner JD Sports Fashion (JD.) fell 4.4% to 120.8p on the negative read-across, while Mike Ashley’s Frasers (FRAS) pulled 0.4% lower to 878.5p.
In contrast, Nike’s German arch-rival Adidas (ADS:ETR) edged 0.5% higher to €224 on hopes it can capitalise on the woes of its American competitor and win market share.
LEADEN FOOTED PERFORMANCE
Nike’s adjusted earnings per share of $1.01 for the fourth quarter to May 2024 beat the 83 cents expected by Wall Street thanks to the sneakers-to-basketball boot seller’s cost-cutting drive.
However, revenue of $12.61 billion was down 2% year-on-year and shy of the $12.84 billion analysts were looking for amid broad-based underperformance from Nike, which is seeing rising athletic apparel market competition from the likes of On Running and Hoka.
Nike reported a decline in online sales and a poor performance from its Converse brand.
Revenues in North America, the Beaverton-based group’s biggest market, came in below market expectations at $5.28 billion, while NIKE Direct revenues were down 8% year-on-year at $5.1 billion.
On the positive side of the ledger, gross margin improved by 110 basis points to 44.7% thanks to ‘strategic pricing actions’ from Nike and lower freight, logistics and warehousing costs, while closing inventory was 11% lower year-on-year at $7.5 billion.
CHINA SOFTNESS PERSISTS
Despite the anticipated boost a summer of sport, Nike now expects first quarter sales to fall by 10% amid ‘uneven consumer trends’ across its markets, with sales in China remaining soft.
Having previously guided towards full year 2025 revenue growth, Nike now forecasts sales to be down by mid single digits and also lowered its first half guidance, with sales now seen down in the high single digits versus the previously forecast low single digit decline.
‘The China marketplace remains highly promotional, and we continue to manage both Nike and partners’ inventory carefully,’ said chief financial officer Matthew Friend.
‘While our outlook for the near term has softened, we remain confident in Nike’s competitive position in China in the long term.’
CEO John Donahoe commented: ‘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.’
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, said: ‘The company’s digital-led, direct-to-consumer strategy is faltering, its problems in China aren’t going away and it is losing market share to specialist rivals in areas like running.
‘China had been an area of real growth for Nike but it has not been helped by the growing tensions between the world’s second largest economy and the West, with some Chinese shoppers boycotting brands from the US and Europe, nor by the Asian country’s uneven Covid recovery.’
Mould added: ‘But Nike faces problems closer to home, too. Its clothing and footwear is not cheap and to get consumers to part with their hard-earned cash, the company needs to deliver products which really resonate. Recent trends suggest it is struggling to do so, with the successful Jordan brand not enough to sustain things on its own.
This could see calls for change when investors gather later in the year, which ‘might include offloading the recently underperforming Converse brand, for example.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
