Nike (NKE) Q4 2024 Earnings

Shares of Nike plunged on Thursday after the retailer cut its full-year guidance and said it expects sales to fall 10% in the current quarter after warning of soft sales in China and “uneven” consumer trends across the globe.

The expected 10% first-quarter decline is much lower than the 3.2% drop that analysts had expected, according to LSEG.

The sneaker giant now expects fiscal 2025 sales to be in the mid-single digits, compared with analysts’ estimates of a 0.9% increase. Nike had previously expected sales to increase. The company also expects first-half sales to be in the high single digits, compared to previous guidance for a decline in the low single digits.

“A return to this scale takes time,” the retailer’s chief financial officer, Matthew Friend, said on a call with analysts. “Although the next few quarters will be challenging, we are confident that we are repositioning Nike to be more competitive with a more balanced portfolio to drive sustainable, profitable and long-term growth.”

The company cut its guidance as it faces slower online sales, planned declines in classic shoe franchises, “increased macro uncertainty” in the Greater China region and “uneven consumer trends” in Nike’s markets, it said. Friend. He also expects sales at wholesalers to be slower as he scales new innovations and retreats from classic franchises.

Shares fell roughly 11% in extended trading.

For the fiscal fourth quarter, the company handily beat revenue estimates as its cost-cutting efforts continue to bear fruit, but Nike missed revenue.

Here’s how Nike did during the period compared to what Wall Street was predicting, based on a survey of analysts by LSEG:

• Earnings per share: $1.01 adjusted vs. 83 cents expected
• Income: $12.61 billion vs. $12.84 billion expected

The company’s reported net income for the three-month period ended May 31 was $1.5 billion, or 99 cents per share, compared with $1.03 billion, or 66 cents per share, a year earlier.

Sales fell to $12.61 billion, down about 2% from $12.83 billion a year earlier.

In fiscal 2024, Nike posted sales of $51.36 billion, which is flat compared to last year. It’s the slowest pace of annual sales growth the company has seen since 2010, excluding the Covid-19 pandemic.

Nike executives attributed the lack of sales to a number of factors. They said its lifestyle business fell during the quarter and that momentum in its performance business, such as basketball and running shoes, was not enough to offset that.

Online performance was soft because Nike had a higher percentage of lifestyle products, more promotions and fewer sales of classic franchises such as its Air Force 1. It also saw China traffic decline across all channels starting in April due to macro conditions in the region.

Despite the drop in traffic in China, sales in the region beat Wall Street expectations, according to StreetAccount, coming in at $1.86 billion, compared with estimates of $1.79 billion. It was the only geographic segment with the highest ratings for the period.

Sales in North America, its biggest market, came in at $5.28 billion, below StreetAccount expectations of $5.45 billion.

In Europe, the Middle East and Africa, Nike posted revenue of $3.29 billion, compared with estimates of $3.32 billion. In Asia Pacific and Latin America, Nike saw $1.71 billion in sales, compared with estimates of $1.77 billion.

However, Friend later warned of a “softer outlook” in China and said that had it not been for the early launch of Chinese marketplace Tmall for the region’s 618 shopping holiday, sales in the country would have fallen short of Nike’s internal expectations. .

“The China market remains very promotional and we continue to carefully manage Nike and partner inventory,” Friend said. “While our near-term outlook has been tempered, we remain confident in Nike’s competitive position in China over the long term.”

Nike’s Converse brand was once again a significant underperformer in the overall results. The division saw revenue fall 18% to $480 million, mainly due to declines in North America and Western Europe.

Over the past few months, the long-time leader in the sneaker and athletic apparel category has found itself in a tough spot, working to stay ahead of a host of new competitors. Its revenue growth has slowed, it has been criticized for lagging behind in innovation and it is in the process of withdrawing its direct sales strategy, which failed to produce the results the company had predicted.

Under the change in strategy, Nike had been working to drive sales through its website and stores rather than through wholesalers such as Foot lockerbut recently began to scale back that initiative, telling CNBC in April that it went too far when it ditched wholesalers.

The strategy can be more profitable and gives companies better control over their brands and customer data, but it can also create logistical headaches and come with unexpected — and costly — hiccups.

During the quarter, Nike’s direct revenue totaled $5.1 billion, down 8% compared to the year-ago period. Meanwhile, wholesale revenue rose 5% to $7.1 billion, reflecting Nike’s change of heart on direct sales.

According to some analysts, the company’s focus on building its direct sales strategy caused Nike to lose sight of innovation — the key attribute that had long distinguished the company.

As the retailer increasingly released old favorites like the Air Force 1, upstarts like On Running and Hoka wowed runners with brand new designs — and wooed them as customers.

Nike has said it will reduce the amount of products it had on the market in favor of new innovations and is betting that a batch of new styles, along with the 2024 Paris Olympics, can put the company back on a stable footing.

During the company’s conference call, CEO John Donahoe said Nike was accelerating its plans to reduce the offering of classic franchises because the brands had performed poorly online, which is expected to affect fiscal 2025 revenue.

“We are meeting our short-term challenges 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 overall market.” Donahoe said. in a release. “I am confident that our teams are aligning our competitive advantages to create greater impact for our business.”

Some of Nike’s challenges are also beyond its control. It has faced a rough macroeconomic environment that has seen consumers shy away from sneaker purchases, and it may also be on the wrong side of trends. Some analysts expect the overall athletic category to face a slowdown this year as denim makes a comeback with consumers and shoppers look to dress up after years of wear.

Meanwhile, Nike has focused on cutting costs so it can at least turn a solid profit against volatile sales.

In December, it announced a sweeping restructuring plan to cut costs by about $2 billion over the next three years. Two months later, Nike said it was cutting 2% of its workforce, or more than 1,500 jobs, so it could invest in its growth areas, such as running, the women’s category and the Jordan brand.

– Additional reporting by CNBC’s Sara Eisen and Jessica Golden