(BFM Bourse) – The sports equipment manufacturer largely missed expectations in the fourth quarter and delivered disappointing outlooks. The group cites its transition to new products, the reorientation of its sales channels, and uncertainties in China.
Bank of America had warned that the market would be watching Nike’s outlook when it released its fourth-quarter results on Thursday evening. The American institution had warned that the famous sportswear manufacturer with the comma risked disappointing consensus. That is indeed what happened.
During a conference with analysts, the financial director, Matt Friend, indicated that the company expected for its 2024-2025 financial year, ending next May, a drop in its “mid single digit” sales, i.e. – say between 4% and 6%. Enough to disappoint analysts who, on average, expected a decline of 2%, according to Bloomberg data.
On Wall Street, Nike shares are taking a storm, plunging 14% in pre-opening trading this Friday, June 28.
Nike said it expects a 10% decline in revenue in the first quarter of 2024-2025, and a “high single digit” decline, i.e. a drop of 7% to 9%, over the entire first half.
Change sales channels
The group cites several transitions it is currently carrying out to justify these disappointing prospects. For several quarters, Nike has been rotating items with the withdrawal of old products to make room for new ones, for example withdrawing the Air Force 1 basketball range.
Additionally, Nike is also trying to shift its sales to its own stores and online sales rather than through multi-brand (wholesale) stores, such as Footlocker. However, in April, Nike CEO John Donaoe acknowledged to CNBC that the move had been too abrupt.
“We are managing a product cycle transition, the complexity of which is amplified by the changing dynamics of the distribution channel assortment,” Matt Friend told analysts Thursday. “A comeback of this magnitude takes time,” he added.
The CFO also indicated that the company had taken into account several elements in its forecasts including “greater uncertainty, particularly in Greater China (i.e. Taiwan and Hong Kong, Editor’s note)”.
Limited impact on Adidas and Puma
Aside from the outlook, Nike also delivered a poor performance for the fourth quarter of its 2023-2024 financial year. Its revenues stood at $12.6 billion, down 2% on a comparable basis and a stable figure excluding currency effects. According to Bank of America, the consensus was for revenue of $12.9 billion.
While wholesale revenues rose 8% excluding currency effects, Nike’s direct-to-consumer sales were disappointing, down 7%, including 10% in digital and 2% in its stores. The weakness in Nike’s own sales channels “is surprising and concerning, as the activewear giant could lose ground to its core customers due to a lack of new products,” said Poonam Goyal, an analyst at Bloomberg Intelligence.
Nike specifically cited weak sales of lifestyle footwear, which had been booming during the pandemic.
Nike’s publication has a fairly moderate impact on other sports equipment manufacturers, Puma and Adidas, which fell by 3% and 0.5% respectively in Frankfurt on Friday morning.
Stifel points out that Nike’s release came hours after Adidas confirmed good product momentum during a “pre-earnings” conference call with analysts. The bank thus notes the “increasing divergence” between the trajectories of the two sportswear leaders. This gap is set to widen “as Nike transitions to more newness and innovation in its product line (which Adidas did 18 months ago),” Stifel adds.
Julien Marion – ©2024 BFM Bourse
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