ii view: Nike readies for new CEO but shares fall

First-quarter results to 31 August

• Revenue down 10% year-over-year to $11.6 billion
• Earnings down 26% to $0.70 per share
• Share buybacks of $1.2 billion

Guidance:

• Expects current quarter revenues to fall between 8% and 10%

Chief finance officer Matthew Friend said:

"Nike's first quarter results largely met our expectations. A comeback at this scale takes time, but we see early wins — from momentum in key sports to accelerating our pace of newness and innovation."

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ii round-up:

Sporting goods giant Nike Inc Class B (NYSE:NKE) withdrew previously detailed sales estimates for the current 2025 full year given the transition to new chief executive and former executive Elliott Hill in mid-October.

First-quarter sales to late August broadly met Wall Street forecasts, falling 10% to $11.6 billion. Sales for the current second quarter to late November are expected by Nike to fall by 8-10%. Analysts had been forecasting a fall of around 7%.  

Shares in the Dow Jones company fell almost 6% in afterhours post results US trading having come into this latest news down around 12% year-to-date. That compares to a 26% gain for German rival adidas AG (XETRA:ADS) and a near 12% gain for the Dow index itself in 2024.

Departing CEO John Donahoe had previously predicted a mid-single digit retreat in full year 2025 sales, a reverse from its previous forecast for growth and below Wall Street hopes at the time for a 1% gain.

Sales at Nike’s biggest category during this latest first quarter, North American footwear, fell 14% to $3.2 billion. Sales at its Converse brand, acquired in 2003, fell 15% to $501 million.

Nike’s direct sales to consumers fell 13% to $4.7 billion. That included a 20% decline in digital related sales, partly offset by a 1% gain in Nike-owned store sales. Sales for its Wholesale business, selling via retailers such as JD Sports Fashion (LSE:JD.), retreated 8% to $6.4 billion. 

Earnings for the quarter fell 26% to $0.70 per share, but beating Wall Street forecasts for a fall to $0.52 per share, and aided by continued cost cuts. In early 2024, Nike announced the loss of 1,500 jobs, or 2% of its workforce. 

An investor day, previously scheduled for mid-November, has been postponed. 

ii view:

Started in 1964, footwear today generates its biggest slice of revenues at 68%, followed by clothes at 28% and equipment the balance of 4%. Geographically, North American accounts for its biggest slug of revenues at around 43%, followed by Europe, the Middle East and Africa at 28%, China 15%, and Asia and Latin America the balance.    

For investors, a reliance on old brands such as 'Jordans' and an arguable lack of product innovation looks to be behind declining sales. Fashion trends can change quickly. A tough economic backdrop for consumers including high borrowing costs is likely also dampening demand. Relations between the West and its major market China remain strained, while environmental considerations for the wider fashion industry also warrant consideration. 

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On the upside, pending CEO Elliott Hill is a company veteran and former department head, who will likely try and revamp Nike’s innovation and strategy. Plans detailed in late 2023 to potentially cut up to $2 billion in costs over the next three years are still being pursued. Further interest rate cuts in its home US market and recently announced economic stimulus in China could both assist demand, while a focus on shareholder returns includes more than 20 consecutive years of dividend increases.  

In all, the strength of the Nike brand and a change of the CEO do offer some grounds for cautious optimism. And while investors would prefer to see signs of a turnaround before taking any serious interest, there has already been a rally off the summer lows. Nike shares are still within reaching distance of the level last seen before the June crash. Question now is whether the momentum can be sustained. Much will depend on Hill's strategy and its execution in the months ahead.

Positives: 

• Product and geographical diversity
• Ongoing shareholder returns

Negatives:

• Uncertain economic outlook
• Subject to currency moves

The average rating of stock market analysts:

Cautious buy