Selling well: A Nike advertisement in Shanghai marks sales in Greater China outpacing analyst expectations, with the Pegasus 41 running shoe doing particularly well. The 4% drop there was the smallest among Nike’s regions. — Bloomberg
NEW YORK: Nike Inc, facing one of its roughest patches in decades, moved to reset Wall Street’s expectations ahead of incoming chief executive officer (CEO) Elliott Hill’s arrival.
The sportswear company withdrew its full-year sales guidance, citing the leadership transition later this month.
Nike is also postponing its investor day, which had been scheduled for November, giving Hill more time to develop his turnaround strategy.
Investors are looking for Hill to rebuild Nike’s frayed relationships with retailers while retaining and inspiring staff who’ve lost faith in the company’s trajectory. Crucially, he’ll also need to accelerate development of new products.
Withdrawing the forecast “provides Elliott with the flexibility to reconnect with our employees and teams, evaluate the current strategies and business trends, and develop our plans to best position the business,” chief financial officer Matt Friend said on a conference call with analysts.
Sales in the financial first quarter fell 10% to US$11.59bil, just short of the average analyst estimate. Declines were especially sharp in North America and the region including Europe, Africa and the Middle East, while problems also persisted at the Converse brand.
Nike expects revenue to fall 8% to 10% in the second quarter before trends improve later this year.
Pressures are easing in some areas. Sales in Greater China outpaced analyst expectations and the 4% drop there was the smallest among the company’s regions.
Classic franchises
Nike said new products are selling well in China, including the Pegasus 41 running shoe, as well as classic franchises like Jordan.
Gross margin benefitted from lower costs for products, warehousing and logistics. Earnings per share in the quarter, which ended Aug 31, also surpassed expectations.
“While there are some early wins, we have yet to turn the corner,” Friend said. Outgoing CEO John Donahoe wasn’t on the call.
The numbers likely won’t matter much to investors, who said the first quarter is a bit of a throwaway as they await the new CEO’s strategy.
“The idea here is that everyone understands that Nike stock now will be predicated on what Elliott does in the future, and that isn’t something that can be really addressed,” said Simeon Siegel, an analyst at BMO Capital Markets.
“This is a picture of a reality we already know has been changed.”
Hill, a Nike veteran who started as an intern decades ago, is coming out of retirement to take the top job on Oct 14.
He replaces Donahoe, who became CEO in 2020 when sales were soaring, but oversaw Nike during one of the most tumultuous years in the company’s half-century history.
Donahoe had sought to boost sales in Nike stores and on its website by significantly paring the number of sneakers the company shipped to retail partners.
Shelf space
But demand for its lifestyle sneakers slumped last year, while upstart brands such as On, Hoka and Salomon quickly filled the shelf space in stores that Nike had vacated.
Meanwhile, at Nike headquarters in Beaverton, Oregon, product development had slowed as the company dealt with pandemic crises and leaned on its existing lifestyle shoes.
Executives have said they’re resetting the product pipeline with a three-year blitz that started ahead of the Olympic Games in Paris this year.
Nike spent aggressively around the Olympics in an effort to revive sales via bolder advertising for a global audience.
The company said “demand creation” expenses rose 15% to US$1.2bil for the quarter.
Nike is struggling to manage three major footwear franchises that catapulted the company to US$50bil in sales, then abruptly stalled.
Sales of Nike Dunks, Air Force 1s and Jordan 1s – Nike’s top lifestyle lines meant to be worn on the street and not as performance shoes – dropped in the double digits last quarter, and the category is expected to decline through the year.
Performance sneakers
Friend said the company is intentionally reducing the proportion of the business that comes from those lines in order to “create better balance,” while renewing its focus on performance sneakers and apparel.
He called out soccer, fitness and running as growth areas.
Nike has been particularly criticised for failing to prioritise runners, one of its key markets.
“We’ve acknowledged that we’ve lost market share in the running specialty channel,” Friend said.
To emphasise the segment’s importance, he added that “Nike’s a running company, Nike’s a running brand and it’s incredibly important for Nike to win with runners”.
Nike executives have hosted their retail partners and shown them products set for release in the second half of 2025 in a bid to win back their confidence.
Nike is also investing in its partners’ shops, developing new areas within Foot Locker and Dick’s Sporting Goods stores.
With two more weeks to wait until Hill’s arrival and Donahoe absent from the call, Friend was the only Nike executive to address investors and analysts, with what sounded like a rousing halftime speech by an interim coach. Investors and analysts
Foundational mindset
In between sober reminders of the challenges Nike faces on all sides, he pitched them on new store openings in Mexico City, a WNBA All-Star party and a one-on-one basketball tournament in Paris.
“Every obstacle, every setback was an opportunity to learn, to adjust and to improve,” Friend said.
“This is the foundational mindset at Nike, inspired by athletes and competition. And today is no different.” — Bloomberg
