Nike Inc. reported better-than-expected earnings, yet its stock dropped after the company announced it would be withdrawing its financial forecast for the full year and postponing its first investor day in seven years.
The move comes amid a leadership transition as CEO John Donahoe prepares to retire, with Elliott Hill set to take over later this month.
Nike CEO transition sparks financial uncertainty
Nike’s earnings for the first quarter exceeded expectations, with the company reporting earnings of 70 cents per share, higher than the consensus estimate of 52 cents tracked by FactSet.
Despite the earnings beat, Nike chose to pull its full-year guidance, citing the leadership change and shifting market conditions.
Matthew Friend, Nike’s Chief Financial Officer, said the company’s revenue expectations had moderated, citing weaker digital traffic, slower retail sales, and reduced orders for the upcoming spring season.
Looking forward, our revenue expectations have moderated since the start of the year, given traffic trends on Nike digital, retail sales trends across the marketplace, and final order books for spring.
The June forecast had anticipated a mid-single-digit revenue decline for the full year, but the company now expects a sharper 8% to 10% decline in the second fiscal quarter.
Gross margins are also expected to decline by 1.5 percentage points due to higher markdowns, reflecting broader challenges in Nike’s retail performance.
Revenue and profit drop
While Nike outperformed analyst earnings estimates, the company’s net income dropped by 28% year-over-year to $1.1 billion, with total revenue down 10% to $11.6 billion.
Direct-to-consumer sales, which have been a key focus for the company, fell by 13%, while wholesale revenue saw an 8% decline.
These figures were in line with analysts’ expectations but still painted a picture of a company facing significant headwinds.
The drop in revenue was most pronounced in North America, where sales plunged by 11% compared to the same period last year, the largest decline among Nike’s four major global divisions.
Investor day postponed as new leadership steps in
Adding to investor concerns, Nike postponed its previously announced investor day, which had been scheduled for November.
The uncertainty surrounding the company’s future direction weighed on investor sentiment, with the stock falling 6% in after-hours trading to $83.90 per share.
Despite the challenging results, Nike’s leadership transition has sparked hope for a potential turnaround.
Elliott Hill, a Nike veteran, is expected to bring fresh energy and strategic direction to the company.
Since Hill’s appointment was announced on September 19, Nike shares have risen by 10%, outperforming the broader S&P 500’s 1.6% increase over the same period.
“Nike’s first quarter results largely met our expectations. A comeback at this scale takes time, but we see early wins—from momentum in key sports to accelerating our pace of newness and innovation,” said Friend.
He expressed optimism that Hill would be able to drive the company’s next phase of growth.
Mixed reactions from analysts
Analyst reactions to Nike’s earnings report were mixed.
Deutsche Bank analyst Krisztina Katai, while acknowledging the weaker-than-expected first-quarter sales, remained optimistic about the company’s long-term outlook, reiterating a Buy rating and increasing her price target slightly to $95 from $92.
She believes that Nike’s gradual improvement will be positively received by investors.
On the other hand, Jefferies analyst Randal Konik was more cautious.
Konik pointed out that the company still faces significant challenges, especially in North America, where the decline in sales indicates growing market share losses.
“The deck [is] not cleared yet,” Konik noted, adding that it will take time for Hill’s initiatives to materialize and address the underlying issues.
Nike’s earnings beat did little to assuage concerns about its overall performance as the company grapples with leadership changes and softening demand.
With a significant revenue decline in key markets, particularly North America, and uncertainty over future financial forecasts, Nike’s immediate outlook remains clouded.
However, many analysts remain hopeful that Elliott Hill’s leadership could steer the company back toward growth in the long term.
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