(April 2): Nike Inc shares tumbled after the retailer gave a surprisingly gloomy outlook for the year ahead, complicating chief executive officer Elliott Hill’s efforts to turn around the business.
Revenue is expected to decline 2% to 4% in the current quarter and will be down in the low single-digits for the rest of the calendar year, management told investors on an earnings call on Tuesday evening. Analysts surveyed by Bloomberg had been looking for 2% sales growth this quarter and bigger gains as the year progressed.
“This is complex work, and parts of it are taking longer than I’d like,” Hill said on the call. “But the direction is clear, the urgency is real, and the foundation is getting stronger.”
Nike, which has been trying to regain market dominance after a protracted sales slump, is facing headwinds around the globe. The company is seeing elevated inventories in Europe and the Middle East and traffic disruption from the war, which it warned could lead to more volatility in its business. Those challenges, as well as weakness in Greater China and other areas, overshadowed strong results in North America.
Shares of Nike fell as much as 13%, sinking to the lowest level since 2015. The stock has now fallen 28% this year.
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Hill is working to get Nike’s core business back on track with a more focused push into sports such as basketball and running, but there’s increasing urgency to reverse declines in China and with its Converse brand, where sales fell more than expected last quarter.
Sales were US$11.3 billion in Nike’s fiscal third quarter, surpassing the average of estimates compiled by Bloomberg but flat from a year earlier. While North American consumers are showing resilience, there were fresh setbacks in Europe and the Middle East.
“The war is likely having an impact on EMEA and tariffs on gross margin,” said Poonam Goyal, a senior analyst with Bloomberg Intelligence. She predicted pressures “will persist in the near term.”
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These challenges also include Greater China, where sales are expected to drop about 20% in the current quarter. The Chinese market has become increasingly driven by discounts in recent years as consumers pull back due to economic slowdown, a property crisis and uncertainty in the labour market. Competition has also intensified.
Nike’s reset in China is “painful,” according to Randal J Konik, an analyst at Jefferies, but the “good news” is that progress is being made in bringing down excess stock levels on the mainland.
Nike’s sportswear division was another area of concern last quarter with high rates of discounting. The segment experienced double-digit declines.
“Returning to a healthy sportswear business is essential and vital to our comeback because it will continue to be a critically important part of the overall market and overall part of our growth,” Hill said.
The recent quarter’s results, which included much of the key holiday shopping period, showed a continued rebound in wholesale revenue in North America. The company expects modest growth in North America for the remainder of the year as order books are strong for the summer and the retailer is regaining shelf space from competitors.
Nike expects to issue longer-term guidance at an investor event in the fall.
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