Nike shoes and logos are seen at a store in Nice, France on May 28, 2024.
Jakub Porzycki Nurphoto Getty Images
Nike on Thursday reported its slowest annual sales growth in 14 years, excluding the Covid-19 pandemic, as the sneaker giant warned of “challenges” that had led to a reduction in its outlook for the current year.
“We are driving a better balance across our portfolio. While we are encouraged by our progress, our fourth quarter results highlighted the challenges that have led us to update our Fiscal ’25 Outlook,” said chief financial officer Matthew Friend in a news release. “We are taking action to reposition NIKE to be more competitive, and to drive sustainable, profitable long-term growth.”
The exact instructions from Nike are unclear. The retailer typically releases its guidance during its earnings call, which is scheduled for 5 p.m. ET.
Last quarter, the company said it expects revenue and earnings to grow in fiscal 2025 but did not say by how much. He said he expects revenue in the first half of fiscal 2025 to decline by single digits, reflecting a “low macro outlook around the world.”
Shares were down about 6% in extended trade.
For the fiscal fourth quarter, the company easily beat earnings estimates as cost-cutting efforts continued to bear fruit, but Nike fell short of revenue estimates.
Here’s how Nike did during that period compared to what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: $1.01 adjusted vs. 83 cents expected
- result: $12.61 billion vs $12.84 billion expected
The company’s reported net income for the three-month period ended May 31 was $1.5 billion, or 99 cents per share, compared with $1.03 billion, or 66 cents per share, a year earlier.
Sales fell to $12.61 billion, down about 2% from $12.83 billion a year earlier.
In fiscal 2024, Nike posted sales of $51.36 billion, which was flat compared to the previous year. This is the slowest growth the company has seen since 2010, excluding the Covid-19 pandemic.
Nike executives attributed the lost sales to several factors. He said the lifestyle business declined during the quarter and the momentum in the performance business, such as basketball and running shoes, was not enough to compensate. It saw weakness in online sales in April and May as it has shown more of lifestyle products. It also saw traffic in China drop from April due to macro conditions in the region.
Despite the decline in traffic in China, sales in the region exceeded Wall Street’s expectations, according to StreetAccount, coming in at $1.86 billion, compared to estimates of $1.79 billion. This is the only geographical division that is considered the highest for the period.
Sales in North America, its largest market, came in at $5.28 billion, below StreetAccount’s expectations of $5.45 billion.
In Europe, the Middle East and Africa, Nike posted revenue of $3.29 billion, compared to estimates of $3.32 billion. In Asia Pacific and Latin America, Nike achieved sales of $1.71 billion, compared to estimates of $1.77 billion.
The Sneaker Leader lost his crown
In recent months, the longtime leader of the sneaker and athletic apparel category has found itself in a rough patch, working to stay ahead of many upstart competitors. Revenue growth has slowed down, it has been criticized for lagging behind innovation and it is re-running its direct sales strategy, which has failed to produce the results the company had anticipated.
In a change of strategy, Nike has been working on sales through its own website and stores rather than through wholesalers like Foot Lockerbut recently began walking back the initiative, telling CNBC in April that it was too far gone when it moved away from wholesale.
These strategies can be more profitable and give companies better control over their brands and customer data, but they can also create logistical headaches and come with unexpected — and expensive — hiccups.
During the quarter, Nike’s direct profit came in at $5.1 billion, down 8% compared to the year-ago period. Meanwhile, wholesale revenue rose 5% to $7.1 billion, reflecting Nike’s shift toward direct selling.
According to some analysts, the company’s focus on building a direct sales strategy led Nike to eliminate innovation – the main attribute that has long made the company special.
As retailers churned out more and more old favorites, such as Air Force 1, upstarts like On Running and Hoka wowed runners with brand new designs – and grabbed them up as customers.
Nike said it will reduce the number of products on the market for new innovations and is betting that a new suite of styles, along with the Paris 2024 Olympics, can bring the company back to its feet.
“We are taking on short-term challenges quickly, while continuing to advance in the areas most important to NIKE’s future – serving athletes through performance innovation, moving at the speed of consumers and expanding the full market,” CEO John. Donahoe said in a release. “I am confident that our team will create competitive advantages to make a greater impact on our business.”
Some of Nike’s challenges are also out of their control. This is countered by a harsh macroeconomic environment where consumers seem to be pulling back on their new shoes, and perhaps on the wrong side of the trend. Some analysts expect the overall athleisure category to experience a slowdown this year as denim makes a comeback with consumers and shoppers look to wear it after years.
In the meantime, Nike has focused on cutting costs in order to at least generate strong profits against unstable sales.
In December, it announced a broad restructuring plan to cut costs by about $2 billion over the next three years. Two months later, it said it was cutting 2% of its workforce, or more than 1,500 jobs, so it could invest in its growth areas, such as running, the women’s category and the Jordan brand.
– Additional reporting by CNBC’s Sara Eisen and Jessica Golden.