The challenges facing Nike (NKE) are “clearly more impactful” than previously expected as the company lowered its full-year revenue outlook following a fiscal fourth-quarter sales miss, Wedbush Securities said Friday.
The athletic footwear and apparel maker now anticipates a mid-single-digit percentage revenue decline in fiscal 2025, Chief Financial Officer Matthew Friend said during a late Thursday earnings conference call. The company previously expected annual growth. Friend told analysts that sales are expected to decline by high-single digits in the first half of the ongoing fiscal year, versus previous projections for a low-single-digit decrease.
“We have been navigating several headwinds, which we now expect to have a more pronounced impact on fiscal 2025,” Friend said on the call. “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.”
For the quarter ended May 31, Nike’s revenue dropped 2% to $12.61 billion, trailing the Capital IQ-polled consensus of $12.86 billion. Revenue for the Nike brand slipped 1% on a yearly basis, while footwear fell 4%. The company logged sales declines in North America and Europe, the Middle East and Africa regions, while Greater China and Asia Pacific recorded gains. Friend suggested on the call that traffic in China was slowing amid a promotional marketplace.
“In Greater China, (fourth-quarter) revenue grew 7%, including several points of contribution from Tmall’s earlier start to the 618 shopping holiday. Excluding this timing benefit, we fell short of our plan with traffic softness persisting across all marketplace channels,” the executive said.
Wedbush believes that Nike’s shares are headed for “a stay in the proverbial penalty box” until new product innovations start manifesting and the company regains investor trust. In December, the company outlined a plan to cut costs by up to $2 billion over the next three years, including by simplifying its product assortment, increasing automation and streamlining the organization.
Wedbush analysts led by Tom Nikic lowered their 12-month price target for Nike to $97 from $115, but maintained their outperform rating on expectations that the sporting goods giant will eventually “figure it out.” Shares of the company tumbled 18% in Friday trading.
Wedbush now estimates the company to report per-share earnings of $3.06 for fiscal 2025, down from its previous forecast of $3.89. The Street is looking for GAAP and normalized EPS of $3.62 each.
Nike projects revenue to be down about 10% in the ongoing quarter, reflecting its “more aggressive actions” in managing its classic footwear franchises, muted wholesale order books and a “softer outlook in Greater China,” among other factors, according to Friend. This guidance implies that sales will be down mid-single digits in the second quarter, Nikic wrote in the note.
In a separate note on Thursday, Truist Securities lowered its price target for Nike to $81 from $99, with a hold rating on the stock.
“While we think the steps Nike is taking now (focusing on innovation, constraining supply of key franchises & re-engaging more with the wholesale channel) can potentially help re-accelerate growth over the (long-term), we don’t think it will be easy for them to retake share that was lost,” Truist analyst Joseph Civello said.