FX.co ★ Nike Drops On Weak Q1 Revenue View, FY25 Outlook Revision

Nike Inc. shares dropped over 12% in after-hours trading on Thursday on the NYSE, following the company's announcement of weak first-quarter revenue projections and a reduced fiscal 2025 revenue forecast. This revision comes after fourth-quarter results fell short of Wall Street expectations. Despite notable growth in wholesale revenues, Nike's underperformance was driven by the NIKE Brand's digital segment and the Converse unit, which focuses on athletic lifestyle footwear, apparel, and accessories. Nevertheless, Nike’s earnings rose compared to last year, surpassing analysts' predictions.

The company attributes its revenue challenges to strong gains in performance products being overshadowed by declines in its lifestyle segment, significantly affecting digital performance. The mounting macroeconomic uncertainties and unfavorable foreign exchange rates have prompted Nike to lower its fiscal 2025 guidance.

Matthew Friend, Nike's Chief Financial Officer, stated, "We have been navigating several headwinds, which we now expect to have a more pronounced impact on fiscal '25. Although the next few quarters will be challenging, we are confident that we are repositioning NIKE to be more competitive with a more balanced portfolio to drive sustainable, profitable long-term growth."

In its fourth-quarter earnings call, Nike mentioned that the updated outlook accounts for the timing and pacing required to manage the marketplace supply of its classic footwear franchises. Additionally, lower NIKE Digital growth, especially in the first half of the year due to reduced traffic and fewer new launches, as well as a decline in promotional activities, factored into the revised projections.

Added macroeconomic uncertainty, particularly in Greater China, coupled with inconsistent consumer trends in EMEA and other global markets, is expected to impact results further.

For the first quarter, Nike forecasts a revenue decline of approximately 10%. For fiscal 2025, the company now anticipates a mid-single-digit decline in reported revenue, with the first half experiencing a high-single-digit decrease.

During the third-quarter results announcement in March, Nike had projected revenue and earnings growth for the next fiscal year compared to the previous year, although it expected a slight decline in first-half revenue.

In the fourth quarter, Nike reported a profit of $1.50 billion, a 45% increase from $1.03 billion in the previous year. Earnings per share rose to $0.99, compared to $0.66 last year, marking a growth of 50%.

Adjusted earnings for the period were $1.01 per share, exceeding the $0.83 per share anticipated by analysts, according to Thomson Reuters data. Analysts' estimates typically exclude special items.

Fourth-quarter revenues fell by 2% to $12.61 billion from $12.83 billion last year, against Wall Street expectations of $12.84 billion. On a currency-neutral basis, revenues remained flat.

After years of double-digit growth, the lifestyle segment experienced a decline in the fourth quarter across men's, women's, and Jordan categories, which offset strong growth in the sport performance business.

NIKE Brand revenues amounted to $12.1 billion, a 1% decrease from the previous year. On a currency-neutral basis, revenues grew 1%, driven by growth in Greater China, APLA, and EMEA, while North America saw a decline.

NIKE Direct revenues fell by 8% to $5.1 billion, primarily due to a 10% drop in NIKE Brand Digital sales and a 2% decline in NIKE-owned stores. However, wholesale revenues increased by 5% to $7.1 billion.

Since fiscal 2019, NIKE's digital business has grown at an approximate 26% CAGR, but fourth-quarter revenues were impacted by lower traffic, higher promotions, and decreased sales of some classic footwear lines.

Converse revenues dropped to $480 million, representing an 18% decline on a reported basis and a 17% drop on a currency-neutral basis, mainly due to weaker sales in North America and Western Europe.

As of May 31, Nike's inventories stood at $7.5 billion, down 11% from the prior year, reflecting a reduction in units.

On the NYSE, Nike shares closed Thursday's regular trading session at $94.19, up 0.14%. Following the earnings report, shares fell 12.39% in after-hours trading, closing at $82.52.