Nike has a tough run as Q2 results show Ebit down 26%

Nike has much work to do under CEO Elliott Hill to get its business on a growth trajectory again. Hill told analysts that the entire Nike team “feels the sense of urgency” to turn around the company’s fortunes with consumers and wholesalers before admitting, “This isn’t going to be easy, but we’re ready for the challenge.” 

The group’s large-scale effort will focus on increasing brand investments, particularly in key countries and global cities; forging tighter bonds with wholesale partners; and elevating its positioning as a premium label through innovation and the lens of sport. But to arrive at these objectives for the fall/holiday 2025 seasons, there will be more pain to endure.

There will be short-term liquidations of excess inventory in less-profitable sales channels and higher discounts to wholesalers to accomplish the same. Additionally, the volume of Nike’s classic footwear franchise will continue to be reduced, resulting in a smaller summer order book, and quarterly gross margins will erode well into the near year. 

The Q2 result is even worse than three months ago, but Nike hopes the decline has reached bottom.

For example, in Q3, ending Feb. 28, Nike forecasts a year-over-year decline in gross margin of 300 to 350 basis points, as overall period revenues are projected to contract by low double-digits. And the headwinds on revenues and gross margin are likely to be stronger in the FY’s final period, ending in May 2025. 

For sure, Hill has a tall task in bringing the company back. Nike shares, down nearly 28 percent year-to-date through Dec. 19, rose more than 6.5 percent immediately after the company reported Q2 results that met expectations, but fell back to about a half-percent increase hours later. 

Q2 Ebit declines by 26% 

Results for the period ended Nov. 30, marred by a sales slowdown in September and October, topped Wall Street estimates and fell within Nike’s guidance. But they were hardly stellar. Ebit tumbled 26 percent to $1,416 million from $1,922 million. Net income fell by the same percentage at $1,163 million versus $1,578 million, and gross margin contracted by 100 basis points to 43.6 percent from 44.6 percent, because of higher discounts and changes in channel mix. 

Currency-neutral revenues slid by 9 percent to $12.35 billion from $13.4 billion. Direct sales slid by 13 percent on a reported basis to $5.0 billion, and wholesale revenues declined by 3 percent to $6.9 billion. 

By product category on a currency-neutral basis, Nike brand footwear sales stepped 12 percent lower to $7.65 billion; apparel sales fell by 2 percent to $3.74 billion; and equipment sales grew by 12 percent to $544 million. 

EMEA results at a glance 

The region’s Ebit contracted by 10 percent to $831 million from $927 million. Reported revenues slipped by 7 percent to $3.3 billion from $3.57 billion, as there was a double-digit drop in off-price sales. Footwear revenues fell by 9 percent to $1.98 billion, despite double-digit increases for the Mercurial, Pegasus and Phantom franchises. Apparel sales declined by 5 percent to $1.14 billion, and equipment sales were up 2 percent at $185 million.