Nike shares tumbled to their lowest level in 636 days to $82.66 in after-hours trading last evening after the company reported a 2 percent drop in Q4 revenues and flat sales in FY24 ended May 31. Ahead of the group’s earnings announcement, which included a downward revision to its FY25 outlook, analysts offered mixed opinions on the company’s current woes and prospects for a turnaround.
The analysts weigh in on Nike
Maria Lernerman, a portfolio manager for Harding Loevner, told one publication, “It takes time for a comeback of this scale, but it’s clear Nike is focused on the right things. I don’t see it as a question of if, but of when, performance will improve.”
Sam Poser, a Williams Trading analyst, was decidedly more negative about the company’s current situation in his comments. He suggested, “The bloom is off the Swoosh,” and pointing to increased market discounting of the brand’s key products due to slow sales of key styles. Both Poser and Citi analysts led by Paul Lejuez suggested rival Adidas is gaining ground on Nike in North America, China and Europe.
Senior Nike executives say there is a sharper focus despite lowered FY25 outlook
Of course, despite admitting a “challenging, hard last year [FY],” Nike senior executives don’t see the company’s current position similarly. They pointed to the brand’s sharpened focus on sport, innovation/newness, and bigger storytelling via increased demand creation spending as some of the keys to a turnaround for the company starting in December or H2/FY25. The company promises to re-invest nearly $1 billion in “consumer-facing activities” in FY25 to help it accelerate sales growth. Key areas will include more design and product creation resources, a larger sports marketing portfolio and an accelerated merchandising effort. Moreover, there are plans to pull back on digital sales of its three top-selling lifestyle models that underperformed in Q4. The action should cause some short-term headwinds.
Nike’s revised FY25 outlook for the 12 months that commenced on June 1 now calls for annual reported revenues to be down by mid-single digits, with H1 sales lower year-over-year by high single digits.
“We’re moving aggressively to re-establish our innovation edge,” Nike President and CEO John Donahoe told analysts. “We began with a focus on performance, as Nike always does, and the early results from newness and innovation are encouraging. Performance grew [by] double-digits in the quarter, with growth in many of our key sports.”
CFO Matt Friend said, “Although the next few quarters will be challenging, we’re confident that we are repositioning Nike to be more competitive with a more balanced portfolio to drive sustainable, profitable, long-term growth.”
Breakdown of Q4, FY24 results
Overall, Nike’s Q4 total revenues of $12.61 billion were down by 2 percent on a reported basis and fell 2.4 percent beneath Wall Street expectations of $12.91 billion. While wholesale revenues expanded by 8 percent, both Nike Digital (-10%) and Nike Direct (-7%) sales were down. However, there were strong revenues generated by basketball, fitness, and kids. By category on a constant-currency basis, footwear revenues dipped by 2 percent to $8.24 billion; apparel sales rose by 4 percent to $3.32 billion; and equipment sales increased by 34 percent to $578 million.
| Nike - Income | |||
|---|---|---|---|
| 2024 | 2023 | Change | |
| Three months ended May 31 | |||
| Revenues | 12,606 | 12,825 | -1.7% |
| Cost of sales | 6,972 | 7,230 | -3.6% |
| Gross profit | 5,634 | 5,595 | 0.7% |
| SG&A expense | 4,088 | 4,374 | -6.5% |
| Interest expense, net | -53 | -28 | -89.3% |
| Other expense, net | -127 | 3 | – |
| Pre-tax | 1,726 | 1,246 | 38.5% |
| Tax | 226 | 215 | 5.1% |
| Net income | 1,500 | 1,031 | 45.5% |
| Diluted EPS | 0.99 | 0.66 | 50.0% |
| 12 months ended May 31 | |||
| Revenues | 51,362 | 51,217 | 0.3% |
| Cost of sales | 28,475 | 28,925 | -1.6% |
| Gross profit | 22,887 | 22,292 | 2.7% |
| SG&A expense | 16,576 | 16,377 | 1.2% |
| Interest expense, net | -161 | -6 | -2583.3% |
| Other expense, net | -228 | -280 | 18.6% |
| Pre-tax | 6,700 | 6,201 | 8.0% |
| Tax | 1,000 | 1,131 | -11.6% |
| Net income | 5,700 | 5,070 | 12.4% |
| Diluted EPS | 3.73 | 3.23 | 15.5% |
| Source: Nike Inc. | |||
Final period Ebit was up by 39 percent year-over-year to $1,726 million as net income increased by 45 percent to $1.5 billion. Gross margin improved by 110 basis points to 44.7 percent, due largely to strategic price hikes, lower ocean freight costs, and improved supply chain efficiency. FY end inventories were down by 11 percent year-over-year to almost $7.52 billion. Converse’s Q4 sales declined 17 percent to $480 million and fell 15 percent to $2.08 billion for the full year.
A look at regional results
By region, Q4 EMEA sales fell by 2 percent to $3.29 billion, with footwear down by 5 percent to $2.07 billion and apparel up by 1 percent to $1.05 billion. EMEA increased by 2 percent to $797 million in Q4. For FY24, EMEA revenues inched up by 1 percent to $13.6 billion, including a 3 percent gain in footwear to $8.47 billion and a 4 percent drop in apparel to $4.38 billion, but annual Ebit slipped by 4 percent to $3.39 billion. Greater China sales rose by 7 percent in Q4 to $1.86 billion and generated a 4 percent Ebit increase to $548 million as the region’s FY24 sales rose by 8 percent to nearly $7.55 billion. The annual Ebit in Greater China was 1 percent higher year-over-year at $2.31 billion. In Nike’s home North American market, constant-currency sales declined by 1 percent in both Q4 and FY24 to $5.28 billion and $21.4 billion, respectively. Ebit in the corresponding periods gained 5 percent and 7 percent in Q4 and FY24 to $1.46 billion and $5.82 billion, respectively.
As for Nike’s divisions, Jordan Brand was the standout performer with a 6 percent increase in sales to $6.99 billion in revenue. Jordan Brand’s profits have doubled since 2020, driven by a strategic focus on women’s apparel, non-basketball products, and increased international sales.
| Nike - Revenues | ||||
|---|---|---|---|---|
| 2024 | 2023 | Change | ||
| Three months ended May 31 | ||||
| North America | ||||
| Footwear | 3,587 | 3,807 | -5.8% | |
| Apparel | 1,398 | 1,349 | 3.6% | |
| Equipment | 293 | 199 | 47.2% | |
| Total | 5,278 | 5,355 | -1.4% | |
| EMEA | ||||
| Footwear | 2,067 | 2,174 | -4.9% | |
| Apparel | 1,049 | 1,038 | 1.1% | |
| Equipment | 176 | 138 | 27.5% | |
| Total | 3,292 | 3,350 | -1.7% | |
| Greater China | ||||
| Footwear | 1,357 | 1,336 | 1.6% | |
| Apparel | 460 | 438 | 5.0% | |
| Equipment | 46 | 36 | 27.8% | |
| Total | 1,863 | 1,810 | 2.9% | |
| Asia-Pacific & Latin America | ||||
| Footwear | 1,226 | 1,230 | -0.3% | |
| Apparel | 416 | 409 | 1.7% | |
| Equipment | 63 | 57 | 10.5% | |
| Total | 1,705 | 1,696 | 0.5% | |
| Global Brand Divisions | 11 | 14 | -21.4% | |
| Total Nike Brand | 12,149 | 12,225 | -0.6% | |
| Converse | 480 | 586 | -18.1% | |
| Corporate | -23 | 14 | – | |
| Total Nike Inc. | 12,606 | 12,825 | -1.7% | |
| Total Nike Brand | ||||
| Footwear | 8,237 | 8,547 | -3.6% | |
| Apparel | 3,323 | 3,234 | 2.8% | |
| Equipment | 578 | 430 | 34.4% | |
| Global Brand Divisions | 11 | 14 | -21.4% | |
| Total Nike Brand | 12,149 | 12,225 | -0.6% | |
| 12 months ended May 31 | ||||
| North America | ||||
| Footwear | 14,537 | 14,897 | -2.4% | |
| Apparel | 5,953 | 5,947 | 0.1% | |
| Equipment | 906 | 764 | 18.6% | |
| Total | 21,396 | 21,608 | -1.0% | |
| EMEA | ||||
| Footwear | 8,473 | 8,260 | 2.6% | |
| Apparel | 4,380 | 4,566 | -4.1% | |
| Equipment | 754 | 592 | 27.4% | |
| Total | 13,607 | 13,418 | 1.4% | |
| Greater China | ||||
| Footwear | 5,552 | 5,435 | 2.2% | |
| Apparel | 1,828 | 1,666 | 9.7% | |
| Equipment | 165 | 147 | 12.2% | |
| Total | 7,545 | 7,248 | 4.1% | |
| Asia-Pacific & Latin America | ||||
| Footwear | 4,865 | 4,543 | 7.1% | |
| Apparel | 1,614 | 1,664 | -3.0% | |
| Equipment | 250 | 224 | 11.6% | |
| Total | 6,729 | 6,431 | 4.6% | |
| Global Brand Divisions | 45 | 58 | -22.4% | |
| Total Nike Brand | 49,322 | 48,763 | 1.1% | |
| Converse | 2,082 | 2,427 | -14.2% | |
| Corporate | -42 | 27 | – | |
| Total Nike Inc. | 51,362 | 51,217 | 0.3% | |
| Total Nike Brand | ||||
| Footwear | 33,427 | 33,135 | 0.9% | |
| Apparel | 13,775 | 13,843 | -0.5% | |
| Equipment | 2,075 | 1,727 | 20.2% | |
| Global Brand Divisions | 45 | 58 | -22.4% | |
| Total Nike Brand | 49,322 | 48,763 | 1.1% | |
| Source: Nike Inc. | ||||
Product development moving forward
Nike’s product development will hasten in FY25, particularly on the performance side, as it scales newness in the market and offers a more balanced approach with performance styles versus lifestyle offerings, wholesale versus direct sales and sporting goods versus athletic specialty distribution. The company has already shown a three-year product pipeline to its wholesale partners as it moves forward with a game plan to further “re-ignite” its innovation platform and intensify its focus on sport. Several new concepts will be unveiled in H2 starting in December.
One performance idea that was introduced earlier this year, Dynamic Air, is being expanded through two new iterations. At least one will focus on customized air cushioning. And there will be a renewed focus on the retro running segment, where Nike intends to triple the business over the next 12 months via new style executions from franchises such as the Cortez. Also, the company has already generated double-digit order book growth with its North American running specialty partners for the Holiday ‘24 and Spring ’25 seasons. On the price point front, meanwhile, Nike intends to introduce a refreshed assortment of under $100 footwear styles over the coming months.
