Sneaker giant Nike, Inc. (NYSE: NKE) has been going through a rough patch for some time, with sales coming under pressure from weak demand and rising competition. Post-pandemic, the company shifted focus to direct-to-customer sales to take advantage of the jump in e-commerce adoption, but sales remained sluggish and the slump continued in the latest quarter.
Nike’s stock suffered a selloff last week after the Beaverton-based athletic footwear maker reported muted earnings and flat revenues for the February quarter, extending the weakness experienced since the beginning of the year. The management’s cautious guidance, warning of a sales pull-back in the first half of fiscal 2025, also weighed on investor sentiment. The shares constantly traded below the 12-month average so far this year. They have lost about 30% over the past three years, underperforming the broad market.
DTC Push
There has been a steady uptick in NIKE Direct sales — an initiative to enhance customer experience through digital sales via websites and apps — driven by the proliferation of online shopping. Meanwhile, it is estimated that the management’s increased focus on digital sales has affected customer traffic, resulting in softer store sales.
Nevertheless, market watchers, in general, are optimistic about the brand’s long-term prospects, citing the effectiveness of the innovation happening at Nike and new product launches, though most of the new products are yet to gain traction with customers. The upcoming summer Olympics could be a tailwind for the company, which is the official apparel and footwear partner of USA Gymnastics.
Outlook
Strong investments in the wholesale segment and reinvigoration of wholesale partnerships will be among the key priorities, going forward. A few years ago, the company had pulled back from wholesale distribution partnerships with retailers like Foot Locker and Macy’s. Nike officials are cautious in their near-term outlook, reflecting anticipated headwinds from the unfavorable inventory position and continued sales slowdown in China.
Nike’s CEO John Donahoe said at the Q3 earnings call: “We’ve reinvested in consumer-led, sport-focused teams that are the foundation of our offense. And, we’re driving our winning formula of creating a relentless flow of innovative products, combined with distinct brand 3storytelling, delivered through differentiated marketplace experiences. And while we still have much work to do, we are making significant progress. We’re well on our way to building a multiyear cycle of innovation that’s bringing freshness and newness to consumers. We’ve pulled forward several innovations more than a year, and our intent is to delight consumers and disrupt the industry.“
Weak Q3
For the third quarter of 2024, the company delivered rather unimpressive results – net income, including special items, decreased to $1.17 billion or $0.77 per share on revenues of $12.43 billion, which was broadly unchanged year-over-year. Experts had projected a better top-line performance. Meanwhile, Q3 earnings excluding restructuring charges came in at $0.98 per share, which is above consensus estimates and the comparable number in the prior-year period. The bottom line has beaten estimates for the third straight quarter.
NKE is currently trading close to where it was about six months ago, after going through many ups and downs during that period. The stock traded lower in the early hours of Monday, continuing the post-earnings weakness.
