Shares of Nike Inc. sank after the sneaker company’s overall outlook missed expectations, fueling investor concerns about falling demand and competition from upstarts On and Hoka, as well as rival Adidas.
The world’s largest sportswear company saw revenue decline by mid-single digits in the company’s current fiscal year, which began this month. Analysts had expected an increase of about 2% this year, according to estimates compiled by Bloomberg.
Shares fell as much as 18% on Friday morning – Nike’s biggest drop since 2001 – wiping billions off its market value. The stock had already fallen 17% over the past 12 months.
Other sports retailers, including JD Sports Fashion and Puma, were dragged down. Adidas gained early on Friday in Frankfurt, Germany, but the stock later erased the gain.
After years of dominance, Nike is trying to produce sold-out shoes to replace best-sellers like the Air Force 1 and Dunk sneakers. Deteriorating performance increases pressure on top managers.
Chief Executive John Donahoe has resorted to layoffs and other austerity measures after a move to prioritize Nike’s sales channels failed to produce the promised levels of profits and growth.
In recent years, the company also limited its reliance on retail partners, who in turn have begun pushing rival brands. The wave of competition from newer brands such as Deckers Outdoor Corp.’s On Holding and Hoka. prompted Nike to pledge to prioritize sports, new products and wholesale partners.
The trajectory contrasts with that of Adidas, whose new chief executive, Bjorn Gulden, has re-embraced retail partners and accelerated the introduction of new products such as the retro Samba sneaker, which has become a hit and sparked a new era of growth. It has also sharpened the company’s focus on athletic performance.
Nike’s fourth-quarter revenue fell 1.7% to $12.6 billion, missing the average of analysts’ estimates. A notable laggard was subsidiary Converse, known for its Chuck Taylor sneakers, where revenue fell 18% due to soft sales in both North America and Western Europe.
Donahoe took over Nike in January 2020 after years leading technology companies including ServiceNow Inc. and eBay. Before that, he spent nearly two decades at management consulting firm Bain & Company Inc., where he became chief executive in 1999.
Some analysts have criticized Donahoe’s leadership approach. Williams Trading’s Sam Poser recently said that Nike’s current senior executives lack “the instinct and experience that the previous team had.”
That has left Nike in a “push model” situation, Poser said, where a company has to convince consumers to buy its products instead of the opposite scenario, where people are trying to get hold of the brand’s shoes and apparel.
It’s a marked change from what Nike has been experiencing for most of the past decade, during which it has essentially doubled revenue from $25 billion in 2013 to more than $50 billion today. While annual sales fell during the start of the COVID-19 pandemic in 2020, growth has otherwise been outstanding until recent quarters.
Now, Nike executives are asking for patience as the company looks to accelerate the launch of new franchises in the fitness and lifestyle categories in the second half of this fiscal year and then bring in more new products over the next two years.
“A recovery of this magnitude takes time,” Chief Financial Officer Matt Friend said during the company’s call with analysts. But he warned that changing the product line would erode sales in the short term.
Nike executives blamed the slowdown in part on lifestyle brands, including the Air Force 1 and Nike Dunks. Sales of the category fell for the first time since the start of the pandemic, as demand for casual wear increased.
The issues could prompt double-digit cuts to analysts’ revenue expectations for the company this year and next, according to analyst James Grzinic of Jefferies. Moreover, the era of European footwear company stock reactions tracking those of Nike is breaking down.
Adidas is now the “sports brand of choice for global investors” after Nike and Lululemon Athletica Inc. lose momentum, Grzinic said in a note.
Weakness in Nike’s own sales channels is also “a cause for concern, as the activewear giant could alienate key buyers due to a lack of innovation,” Bloomberg Intelligence analyst Poonam Goyal said.