Nike On Thursday, the sneaker giant warned that sales will fall by double-digit percentage in the current quarter as it slips new tariffs, consumer confidence and competes with slower than expected turnarounds.
In a conference call with analysts, Treasury Chief Matt Friend said Nike expects sales in the fourth quarter, which closes in May, to be “low-end” in the “mid-October range.” It is also expected that the total margin will fall between 4-5 points to strengthen efforts to settle excess inventory and old styles that no longer resonate with consumers.
“We believe that the fourth quarter reflects the biggest impact from our actions. “We are also navigating several external factors that create uncertainty in our current operating environment, including geopolitical dynamics, new tariffs, volatile foreign exchange rates, and tax regulations.
The guidance is much worse than analysts expected. LSEG Show’s consensus estimate from Wall Street was expected to see sales fall 11.4% for the current quarter.
Stocks fell more than 4% in extended trading and down more than 5% as of Thursday’s closing.
Beyond guidance, Nike broke Wall Street expectations for the third quarter.
Here’s how the company performed during the quarter compared to the analyst estimates voted by LSEG:
Earnings per share: 54 cents vs 29 cents estimated recording: 11.27 billion dollars vs 11.01 billion dollars
The company had net income for the three months ended February 28th at $794 million, or 54 cents per share, compared to the previous year’s $1.17 billion (77 cents per share).
Sales fell to $11.27 billion, down approximately 9% from $12.4 billion the previous year. Like other retailers, Nike saw strong demand in December, and the “double digits” fell in January and February.
Nike brought a strong revenue beat, but expectations were low towards release, with profits down 32% from the same period last year.
Nike’s total margin fell by 3.3 percentage points to 41.5%, lower than expected at 41.8%, according to StreetAccount. This is primarily due to costs associated with Nike’s efforts to clear old stocks in favor of new, innovative styles. In a press release, the company attributes the decline in gross profit margins to “high discount rates, increased inventory obsolescence, increased product costs, and changes in channel mix.”
Meanwhile, sales fell 9% due to China’s weakness. During the quarter, major regions’ sales fell 17% to $1.73 billion, falling short of $1.844 billion, according to StreetAccount.
“I spent some time there in December. It wasn’t for a while. The competition is a little more aggressive than I remember,” CEO Elliot Hill, who left Nike in 2020 and returned last year, told analysts. “So we just have to accelerate our pace.”
Thursday’s release is his efforts to turn the business around and return to growth five months after Hill’s tenure as CEO. He has focused on regaining his wholesale partner, rekindling innovation and pleading athletes who have fled to new competitors, but this job has yet to deliver results.
“I start by saying I am proud of the progress I made against the important actions I committed 90 days ago. We are not satisfied with the overall outcome while meeting the expectations we set,” Hill told analysts. “We can get better.”
During the quarter, Nike’s direct channel sales fell 12% to $4.7 billion. Wholesale revenue fell 7% to $6.2 billion.
Plus, with Hill taking over, the company is now competing with a new set of dynamics that can make the comeback even more difficult.
Three months after Nike last reported revenue, President Donald Trump cast a 20% new tariff on goods imported from China, reducing consumer sentiment, and retail sales were weaker than expected in both January and February.
Of the hundreds of suppliers and manufacturers Nike works for, about 24% of these are in China, according to manufacturing disclosures released in January. If retailers don’t raise prices to offset tariffs and can’t push costs up completely to suppliers, Nike’s margins are expected to take a hit from the new obligation. In a call on Thursday, Nike didn’t say whether to raise prices or how the new obligation would affect margins.
Furthermore, when consumers are not confidently cutting their spending, discretionary products like new clothes and shoes are one of the first things they cut out in favor of essentials. The overall sneaker and apparel market has slowed down as consumers have cut clothing and shoes over the past few years. However, until recently, strong companies were still working well, gaining market share from weaker competitors.
However, this trend has begun to change over the past few weeks when even the strongest companies began to feel wary about soft consumer spending when they reported first-quarter revenue and raised questions about economic health.
During the quarter, Nike’s biggest market, North America, fell 4% to $4.866 billion. Still, revenue in the region has been better than the $4.53 billion analyst expected, according to StreetAccount.
Nike is widely expected to regain lost market share and reset its business, with some insiders saying the company’s problems are being exaggerated. Still, tariffs and economic fears can mean that retailer turnarounds can take longer and more difficult than expected.
The key to Nike’s transformation plan is the ability to rekindle innovation and create industry-leading shoe and apparel types that have long become market leaders. In a call with analysts, Hill said the early release of the company’s new Pegasus Premium was “almost sold out” across North America, expanding until fall 2025. Created for daily runners, the Romero 18 looks at “outstanding” results, and Nike is expected to double the distribution by mid-April.
“It takes time to reach the volume. “It helps consumers fall in love with Nike’s new stuff, and something hasn’t been replaced by other icons.”
Nike is already moving towards another key factor in boosting revenue and apparel sales: efforts to grow a female consumer base. Last month, we announced that we will be working with Kim Kardashian’s Trimate brand skim to create a new product line called Nikeskims, which includes apparel, footwear and accessories. The Buzzy Partnership is expected to help Nike improve intrusions with women and allow them to compete better with Lululemon, Alo Yoga and Vuori.
Additionally, Nike has debuted a new advertising campaign aimed at female athletes at the Super Bowl. This is the first big game ad in decades. The campaign showed that reaching female athletes and gaining buzz around women’s sports would be a central point in Hill’s strategy.
If Nike can continue to show positive signs from the launch of new products and partnerships, the rest of that headwind may own as noise.
