NIKE, Inc. (NKE) on Q2 2021 Results - Earnings Call Transcript
Operator: Good afternoon, everyone. Welcome to NIKE, Inc.’s Fiscal 2021 Second Quarter Conference Call. For those who want to reference today’s press release, you will find it at investors.nike.com. Leading today’s call is Andy Muir, VP, Investor Relations. Before I turn the call over to Ms. Muir, let me remind you that participants on this call will make forward-looking statements based on current expectations and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in the reports filed with the SEC, including the annual report filed on Form 10-K. Some forward-looking statements may concern expectations of future revenue growth or gross margin. Andy Muir: Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.’s fiscal 2021 second quarter results. As the operator indicated, participants on today’s call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago or at our website, investors.nike.com. Joining us on today’s call will be NIKE, Inc.’s President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial questions to one. In the event you have additional questions that are not covered by others, please feel free to re-queue and we will do our best to come back to you. Thanks for your cooperation on this. I’ll now turn the call over to NIKE, Inc. President and CEO, John Donahoe. John Donahoe: Thank you, Andy, and hello and happy holidays to everyone on today’s call. Before I get into our Q2 performance, I want to acknowledge the global environment right now. We continue to deal with the COVID-19 pandemic with surges across the U.S. and in many countries around the world. In fact, consistent with social distancing norms Matt, Andy and I are doing this call from our homes. So, if this audio sounds a little different, that’s why it’s in the Zoom world. And we’re feeling optimistic, with positive news on vaccines, but in the meantime, we hope everyone stays safe out there. Looking at Q2, our strong business results reflect our relentless focus on our objectives. I’m going to talk this quarter about the same themes I talked about last quarter. And most probably next quarter, I’ll talk to you about them again. The reason for this consistency is that our strategy is sound. Our strategy is working. And we’re excited by what we’re seeing as we continue to execute it. Matt Friend: Thank you, John, and hello, and happy holidays to everyone. As I said in our last call, NIKE is recovering faster, fueled by our unparalleled brand momentum and sharp focus on operational execution. Consumer engagement with our brands continues to grow in frequency and depth through the power of our product franchises and fresh storytelling delivered through improved digital and physical experiences. Our financial results in the second quarter and for the first half of fiscal ‘21 are proof that NIKE has recovered and is moving forward. We have a new consumer offense and a clear vision for how we will engage and serve consumer demand for our brands through digital, leveraging a technology-enabled operating model, which is being built for greater speed, efficiency and effectiveness. While uncertainty due to the global pandemic persists, our teams are now better equipped than ever to navigate through the dynamics we face. We continue to leverage our operational playbook and we learn more every week. Our leadership momentum and trajectory in Greater China is helping to shape decisions we are making around the rest of the world. Our teams are sharply focused on the key metrics that matter most to accelerate the pace of our recovery and return to sustainable, profitable growth. In June, we set clear measures of success for the first half of this fiscal year, and now six months later, we’ve exceeded those goals. Let me share a few of the highlights. We said inventory would return to a healthy and normalized level by the end of Q2. And now, through intentional supply and demand management actions, marketplace health has been restored across all geographies without compromising the value of our brands and product franchises. And NIKE-owned inventory is clean, ending Q2 down 2% versus prior year while delivering 9% revenue growth on a reported basis. Operator: Our first question comes from Adrienne Yih with Barclays. Your line is open. Adrienne Yih: Good afternoon. And congratulations on the progress, really nice to see the inventory ahead of plan. So, just sticking with that thematic on inventory. I was wondering if you can talk about the quality or the mix of the inventory entering this next quarter. Are the promotional aspects of it behind, were they -- was the promotional piece of the business in the sub-$100 category, or were there any characteristics that we can glean from the promotional activity? And then, as you look forward to the inflection, sort of the global reopening, how are you thinking about the capacity to chase inventory, particularly in the high heat product? Thank you very much. Matt Friend: Sure, Adrienne, and thanks for your question. As a starting point, as we mentioned several quarters ago, our focus has been on managing supply and demand. And we talked specifically about our focus of trying to normalize inventory by the end of the second quarter. And so, the work that we’ve done around the world, not only to cut supply but also to work with our marketplace partners and to try to capture and drive demand over these past six months has been significant in order to be able to put us in this position that we’re in today. I mentioned in my remarks that we’ve seen markdown levels, which continue to be worse than the prior year, but better than we had anticipated and better broadly than what we’re seeing across the rest of the marketplace, indicative of the strength of our brand. And so, as we finish this quarter, the health of our inventory and the health of the inventory across the broader marketplace is exactly where we were hoping for it to be. As we look forward, we’re obviously still in the midst of a pandemic. And so, I’ve said a couple of quarters in a row now that we continue to take a cautious approach to supply and demand management as we look at the second half. We’re still in a pandemic, and we know things won’t be linear until we see the pandemic and the virus under control or contained. And so, what we’ve been focused on is ensuring that we protect the value of our brands and our product franchises, and ensure that we set the Company up for healthy growth and profitability in fiscal year ‘22 and for the years after that. So, that’s really been what’s guiding our approach. I did mention the Express Lane in my remarks, and it’s a tool that we’ve been using around the world that’s almost 20% of our business today. It’s not equally 20% across every geo. It’s largest in EMEA, as we’ve been talking about for several quarters. And it’s absolutely a useful tool for us that we continue to intend to use to grow as a larger portion of our business but also as a really critical lever to be able to manage supply and demand as we’re reading the marketplace on a weekly basis. So, that’s going to end up being a critical component of our future as we look forward in a much more responsive way than the way we’ve been able to operate in the past. As far as High Heat product and those things, we’re managing those styles and those franchises the same way we manage the rest of our franchises. And so, we continue to have plans, and we use those as great tools to create brand energy in the marketplace, but also to give consumers what they love. And we’re not managing those franchises any differently than we would manage any other franchises in this time. We’re managing them for the long term, and that’s what we will intend to do in the second half. Operator: Our next question is from Bob Drbul with Guggenheim. Your line is open. Bob Drbul: I guess, the first question that I have, I guess, when considering the call date, what were the gating factors between choosing Friday evening or Saturday morning? John Donahoe: Well, we called to your assistant and we asked her whether -- when you would be most available, and she thought that this would be a better time. Bob Drbul: Always, I wouldn’t miss it, wouldn’t miss it. So, I guess, the other question that I have is, can you -- in Europe specifically, the play between some of the lockdowns in the various countries and your digital and your bricks-and-mortar, can you just talk about how that’s really materializing? And if you could maybe just talk through a little bit here in the U.S., what you’re seeing in some of the markets where the virus is spreading and impacting the stores over the last few weeks? Thanks. Matt Friend: Sure, Bob. So, what I would say is, is that the situation has been dynamic since March. And we’ve watched wave after wave of the pandemic hit different markets and different time lines around the world. And really, the only marketplace where we’ve seen continued sort of trajectory in terms of managing the virus has been China. But we expect the marketplace to continue to be pretty dynamic. I think, I mentioned that we’re seeing waves of more restrictions happening across Europe and in parts of the U.S. And we’re expecting that the situation is going to continue to be unique here as we finish the holiday season and enter into the later part of winter. However, we are looking at and have raised our guidance to low-teens revenue growth because we feel like the momentum that we have, the brand strength and the playbook that we’re employing is giving us confidence that we can continue to manage through this. As it specifically relates to what we’re seeing now, our retail sales across the marketplace for holiday have continued to track very well versus the prior year. But in Europe, where we’re seeing more restrictions of shutdowns, physical retail continues to be the area where we’re seeing the largest impact. Stores continue to open and close on different cadences. They have to manage through traffic capacity constraints. And at this point in time, as of today, about 80% of our stores are open in EMEA, but many of them are still operating under modified and/or reduced hours. So, the situation is dynamic, to say the least. We’re also watching carefully potential bottlenecks in the supply chain. And to-date, we’ve been able to continue to meet EDDs with consumers on our digital business. And we’re leveraging the relationships that we have with carriers and otherwise in order to manage our business through this time. But, it’s definitely something that we’re watching, Bob, and it’s dynamic. I guess, where I’d probably finish is just to say that we know the path isn’t going to be linear, and we’ve been saying that for several quarters. But, we think we’re better positioned at this point to manage through the uncertainty probably than we were prior to the pandemic. We’ve learned so much over the last nine months. And the way that we’re operating as a team gives us a lot of confidence that we can continue to manage through this. And as I said earlier, we’re just -- we’re focused on setting a strong foundation for growth and profitability in fiscal year ‘22 and beyond. And so, we’re making decisions in the midst of the uncertainty here to do that and to position ourselves to accelerate once the pandemic is behind us. John Donahoe: And Matt, maybe two things I’d just add on. One is just a shout out to our stores, our direct team and our stores team who have just been -- just amazing through this period of the open-close, open-close. Our store athletes, our frontline store athletes, our entire stores team and our supply chain and distribution team, they have been sort of the unsung heroes I think through what has been a very dynamic time. And as Matt said, while we’re opening and closing physical retail, digital is open 7 days a week, 24 hours a day. And what’s fascinating to watch is the consistency of the growth across digital. And so, I think there’s -- we have increasing evidence that when a consumer wants to get something, if physical retail is closed, they’re coming to us digitally, and our ability to reach consumers digitally in a variety of manners is just getting better and better as this pandemic goes on. Operator: Our next question is from Michael Binetti with Credit Suisse. Your line is open. Michael Binetti: Hey guys. Thanks for all the detail here today and taking our questions, and congrats on a nice quarter. On -- I want to ask you, John, on North America, on wholesale. I think you mentioned -- or I guess, Matt, you mentioned down 14% in the quarter, a bit of a deceleration from last quarter. And you did talk about accelerating the strategy and transforming the end markets, but I know there was a very purposeful focus on getting the inventories aligned. So, I’m curious, as you look at the North America wholesale outlook, is second quarter -- is it smart to think that that might be the peak of the pullback in the near term and that drag gets a little better from here with the inventories more aligned, or would you say that to think about it still being down at that level as you go forward as you kind of keep working on the marketplace? Matt Friend: Sure, Michael. I’ll take that. And then, John, if there’s anything you want to layer in here, please do. Yes. So overall, wholesale was down 14% in the quarter, and we referenced that we had to make some real-time decisions in the quarter in order to address the realities of the situation in the marketplace. And I think in the last call, I said something along the lines of -- or maybe it was two calls ago, I said something along the lines of, as we were adjusting forward-looking supply, we took a more aggressive action in North America because we did not believe the recovery curve in North America was going to look the same is what we expected to see in China, Asia or even in Europe, given the way that we were seeing differences in response to the -- different countries’ response to the virus. And so, when we got close to the second quarter and into the second quarter, we had to make some decisions about how to allocate that inventory, and we focused it on our strategic partners and serving consumer demand through NIKE Direct. And so, we saw a greater reduction in undifferentiated wholesale. As we look forward, we’re going to be more aggressive in adjusting our plans with undifferentiated wholesale. But, what I would tell you is, is that we believe that we and our partners are very well-positioned to capture demand that gets dislocated from changing the profile and the shape of the marketplace. And so, I think looking at this quarter, I think this quarter was more indicative of the way we manage supply and demand in the face of the pandemic and the challenges that that created in the short term versus it’s an indication of trend for that line of channel of business. Okay? But, as we look forward, we are going to be more aggressive with larger undifferentiated customers that we have been working with. And we’re working closely with our strategic wholesale partners in a city-by-city, mall-by-mall, street-by-street basis to work together to determine how we’re going to recapture that demand. And that’s absolutely our plan because we believe longer term, as we’ve said before, we believe that a premium, consistent experience for consumers across the marketplace connected to digital is the type of market foundation that we think we need as a premium brand to create and to be the foundation for long-term growth in the North America marketplace. Michael Binetti: Can I just follow that with a question on China? And it’s nice to see the margin -- the EBIT margin there return back to expansion in the quarter. Some of our work suggests there’s quite a bit of inflation in that market in areas like freight, but more so in marketing and CAC digital, customer acquisition cost. Does the top line trajectory there offset a lot of that inflation? Are the prior peak margins that we saw in that market still attainable, or is it -- do you feel like that market, more appropriate to focus on profit dollar growth and margin expansion back to historic levels as we kind of come past COVID here? Matt Friend: Yes. I mean, it’s a great question. And as we’ve been working our way out of COVID in China, the thing that we’re just reminded of is how large of a market opportunity that is for us, and we continue to see it again this quarter. We’re not able to meet the full demand that we see in that China marketplace. And we continue to see the strength of our brand increasing quarter after quarter after quarter. I think that as it relates to cost, we’ve been in a really high -- we’ve been driving -- and forgive me for forgetting the number, but in the 10s, the 20s of quarters of double-digit growth in that Greater China marketplace, and we’ve done it while maintaining a very strong profit profile. So, what you saw over the last two quarters was more indicative of us working through the dynamics in China with inventory and those things as a result of managing through COVID versus there being an underlying theme of profit erosion long term. I think, we believe that the China marketplace continues to be a great opportunity for us. And we manage the business top to bottom, Michael. So, we’re looking at pricing. We’re consistently looking at opportunities to grow the business in dimensions where we have less of share. But, we’re really pleased to see the growth in our market share in that marketplace, and we believe that profits will continue to grow at an accelerated rate over time. John Donahoe: Matt, what I’d just add on to that is the strength of our brand in China, both NIKE and Jordan, very, very strong. And I think that is partly what’s driving the share gain there. Operator: Our next question is from Kimberly Greenberger with Morgan Stanley. Your line is open. Kimberly Greenberger: Okay, great. Thank you so much. That digital growth is really impressive and sustaining at such a high level consistently. I’m wondering do you think that’s a function of just the additional digital touch points you’ve acquired this year or a more savvy digital marketing strategy. I’m just wondering if you could hypothesize about some of the drivers there. And, when you take a look at that digital P&L, I think, you mentioned over 100% growth, for example, here in North America or in the U.S., helped by the new LA regional service center. Are you hitting the point where you’re starting to see a sort of inflection in your incremental margins in that business, either for scale or because of some of the unlocks, like in that regional service center? John Donahoe: Matt, maybe why don’t I take the first part of Kimberly’s question and you take the second? Matt Friend: Sounds good. John Donahoe: So, Kimberly, yes, our digital business has been experiencing tremendous growth, 80% globally, 100% in the U.S. Our Nike App grew 200%. Our Nike mobile app grew 200% this quarter. And I think what’s underlying that is that digital is the new normal in consumer behavior, and we believe the trends that we’re seeing are here to stay. In fact, as we’ve said now in a couple of quarters, we believe that we’ve well passed the 30% of our overall business, and we think it will be more in the range of 50% in the near future. And it’s an area we have a clear lead. When you ask about what’s driving it, again, we go back to a simple mindset, through the eyes of the consumer, which is consumers want to get what they want, when they want it, how they want it. And that means, obviously, great digital experiences mobiley, through our apps, SNKRS and others online, but also consumers actually, they don’t differentiate digital and physical in the same way they used to. So, they may want to buy online, pick up on store. They might buy online, have it shipped from store. They may want to go try it on and then have it shipped home. And so, we are driving our digital transformation end-to-end, right? So, yes, it’s impacting our digital experiences. No doubt that’s getting better and better and better where it’s better searched, better -- the digital experiences are getting better each quarter. I’ll come back to membership, which I think is key. As Matt said, we’re building out our stores, working with our strategic partners that offer that consistent, seamless experience that consumers expect. And frankly, the supply chain, don’t underestimate the impact of this digital on translating our supply chain. Matt talked about we’ve done in Greater China. 300% increase in digital fulfillment capacity in North America, 400% in EMEA. Robots played a huge role. Over 1 million boxes shipped by robots and the productivity that comes with that. So to be a great digital company, you’ve got to be end-to-end. But I would say, if there’s one thing I’d highlight is the backbone’s membership, right, having a direct connection with consumers. And we are growing our membership. And it’s simple. How do we bring more people into the top of the funnel and establish a direct connection with them? How do we engage them? Engage them through engaging, whether it’s NIKE Running Club, NIKE Training Club, SNKRS app, live streaming is a way to engage consumers. And what we know is more engaged consumers buy more. And one of the most, I think, exciting things we saw in the quarter was these Member Days where it’s really the first time we have really targeted our members, provided more personal recommendations. We’ve allocated scarce product for them, offered them first access. And the conversion rates were very impressive. And so, I think this is a virtuous cycle that we get better and better at the whole membership funnel, the full funnel that we can have a more direct connection with consumers, we can offer more personalized and targeted offerings. I think, the opportunity to expand with women digitally is significant. So, it’s no one thing. And I learned this from my days in the digital world. It’s a lot of little things that make a difference to be a great digital company. And we’re a clear leader here. I think, we’re extending our market share lead digitally and we’re going to continue doubling down. Matt, do you want to take the second piece of Kimberly’s question? Matt Friend: Yes, sure. I’ll just jump in on the second piece. I guess, what I’d say, Kimberly, is your question specifically about the regional service center, John sort of hit it, I mean, our focus at the start is capacity. We needed more capacity because we were watching demand shift rapidly to digital. And so, not only did we open that regional service center in LA, but we leverage omnichannel capabilities in our existing distribution centers in order to be able to do the 300% or 400% increase in volume that John referenced to fuel that business. As I think about the impact on the financial model, and I’ve probably said this a couple of times before, but I’ll use a frame that John just used, getting consumers what they want, where they want and how they want. We’re investing in technology and the supply chain so that we can better predict where to put inventory, where we think consumers want the inventory. And the benefits for us in that are in gross margin. It’s more full price realization. It’s lower cost to fulfill. And frankly, it’s better for the environment because it’s less shipping and it’s less moving stuff around. So, it’s better. We’re investing in technology to create O-to-O capabilities in the marketplace. And while we don’t have the largest store footprint today that -- relative to maybe pure vertical retailers, we are investing in stores with the intentionality of having stores in more places with O-to-O capabilities with capabilities like buy online, pick up in store; more pickup points; shipping from store; shipping to store, so that we can serve that demand more closely to consumers, again, lower cost, better for the environment, better sustainability. And then, I guess, the last thing I’d probably hit on, and John referenced it vis-à-vis member days and the member funnel, we’re spending -- we’re investing a lot of money in digital marketing today. But the marketing -- the opportunity that we see with greater acknowledgment of who our consumers are and how they shop across the marketplace is more personalization and it’s a greater return on those marketing dollars because we’re moving deeper into the funnel. We know who those consumers are. And we have the ability to react and reengage them at a lower cost to us or a lower acquisition cost, which should improve, either create leverage in our demand creation over time and/or enable us to use the dollars that we’re using to drive a greater revenue plan. So, those are some of the things that we’re excited about. Those are -- are we seeing the fruit of it today? We’re starting to. But what you are seeing, Kimberly, is we can see more clearly though where the biggest pockets of opportunity are. And that’s where we’re focused and that’s where we’re investing to create capability, so that we can drive these outcomes as we look several years out. So, this is where we’re focused as a team. And it’s what’s going to fuel our financial model over the next several years. Operator: Our last question is from Paul Trussell with Deutsche Bank. Your line is open. Paul Trussell: Happy holidays, and great team quarter, team. John Donahoe: Thanks, Paul. Paul Trussell: I wanted to ask about margins. Maybe a little bit more detail and color on the factors impacting both GPM and SG&A, both in terms of the second quarter and also your second half guidance. In particular, I would love to hear a little bit more about demand creation, which was obviously down double digits this quarter, and sounds like it’s going to inflect up a bit, and then, also the profile of profitability of your DTC and digital business, right? Obviously, that’s accretive. But certainly, to the extent that you are scaling obviously meaningfully on the top line, and also earlier, you highlighted that you’re finding ways to reduce per unit fulfillment cost. I’m just wondering to what extent is that channel’s margins actually seeing improvement overall. Thank you. John Donahoe: Now, Matt, that is a great last simple question for the year. And I’m going to give you full permission to answer that in a very concise manner. Matt Friend: Well, I guess, where I’d start, Paul, is when we look at our margins in the second quarter, we’re very-pleased with where gross margin performance landed. We said gross margin in the short-term would be more of a function of how we manage supply and demand. And so, we were more focused on the quality and health of our franchises and restoring inventory levels. And that’s ultimately what drove -- that’s ultimately what drove our operating plan for the last six months. We’re probably even more so pleased with the speed of recovery because it puts us in a position now where we can look forward and say, how do we want to manage the business as we move forward. And as I said earlier today, we’re incredibly focused on the things that are required in order for us to achieve that vision of Consumer Direct Acceleration. So, as we look ahead, our gross margins are going to be roughly flat is what our guidance is for the third quarter. And that’s another quarter of sequential improvement in margin. That’s being driven by a higher full price mix in the third quarter and lower discount activity. And that’s going to be offset to some degree by factory store liquidation that we talked about last quarter, where we’re still planning for more markdowns in that specific channel. Because we continue to see traffic lagging behind the prior year in that specific channel, so that we can keep conversion rates up. In the third quarter, I should also say that we’re going to -- we’re expecting to see about 55 basis points of FX headwinds. So, we had about 30 per quarter in the first two quarters of this year, and we’re expecting 55 basis points in Q3. And so, FX adjusted, the margin looks even better, sequentially. And what I’d say maybe as just a little side point on this is that we think third quarter will end up being the trough on FX for us. So, we started to see benefits in translation on the top line. But FX has continued to be a headwind in EBIT through the second quarter, will be through the third quarter, and it will lessen as we get into the fourth quarter. And then, that’s where we expect to start to see some inflection from a weaker U.S. dollar and strong growth outside the U.S. So, I think that’s probably where I’ll stop. And I know our team can follow-up with you with more questions specifically on the modeling. But, thanks, and happy holidays. Andy Muir: Thank you, Paul. John, were you going to say something? John Donahoe: Just, Andy, Matt and I and Andy want to extend happy holidays to everyone on the call. Thank you for doing the call on a Friday afternoon. Hopefully, this frees up a little of your holiday week next week. And please, everyone, have a very safe and happy holiday. And thanks again to all the NIKE teammates around the world for incredible teamwork, resilience and commitment this year. Happy holidays. Andy Muir: Thank you, all. Operator: This concludes today’s conference call, and you may now disconnect.
Morgan Stanley Trims Nike Price Target as Turnaround Timeline Stretches
Morgan Stanley lowered its price target on Nike (NYSE:NKE) to $61 from $70 while maintaining an Equal Weight rating, citing a lengthening path to recovery amid macroeconomic pressures and underwhelming brand momentum.
The firm noted that recent tariff developments and broader economic conditions are likely to delay Nike’s turnaround efforts. Adding to the cautious outlook, Morgan Stanley reported limited positive feedback from wholesale partners regarding consumer demand or upcoming product innovations. Additionally, the brand’s visibility and momentum—often referred to as "brand heat"—showed no meaningful improvement over the past three months.
Analysts now believe consensus estimates for fiscal 2026 earnings may be too optimistic, and management could be forced to temper expectations of a post–fourth quarter rebound. While Nike’s strategic execution appears to be gaining some initial traction based on wholesale and specialty retail checks, the broader recovery remains both slow and unpredictable.
Complicating the narrative is Nike’s elevated valuation—trading at 32 times earnings versus its pre-COVID average of 24—making it harder for investors to justify a near-term bet on a turnaround. Still, Morgan Stanley acknowledges that expectations are currently low heading into the next earnings report, leaving room for any positive surprises to act as short-term catalysts.
Nike Slumps Over 6% as Weak Q4 Outlook Overshadows Earnings Beat
Nike (NYSE:NKE) shares dropped more than 6% in pre-market today, as a disappointing revenue forecast for the fourth quarter erased initial gains sparked by a stronger-than-expected third-quarter report.
The company reported Q3 earnings per share of $0.54 on revenue of $11.27 billion, beating analyst estimates of $0.29 EPS and $11.02 billion in revenue. The upside was fueled by strong demand for new footwear launches, a bright spot under new CEO Elliott Hill’s early leadership as he works to revitalize the brand.
However, optimism was short-lived after CFO Matthew Friend signaled a mid-teens percentage decline in Q4 sales, steeper than the 12.2% drop expected by analysts. The company also warned that discounting efforts to clear excess inventory could further weigh on fourth-quarter performance.
The update triggered a sharp reversal in sentiment, as investors digested the impact of continued demand softness, especially in key markets. In Q3, overall revenue fell 9%, with North American sales plunging 21% to $1.1 billion, and Greater China revenue dropping a staggering 42% to $421 million.
Despite exceeding profit expectations this quarter, Nike is clearly navigating a challenging retail environment, with regional headwinds and margin pressures clouding its near-term outlook.
Nike Slumps Over 6% as Weak Q4 Outlook Overshadows Earnings Beat
Nike (NYSE:NKE) shares dropped more than 6% in pre-market today, as a disappointing revenue forecast for the fourth quarter erased initial gains sparked by a stronger-than-expected third-quarter report.
The company reported Q3 earnings per share of $0.54 on revenue of $11.27 billion, beating analyst estimates of $0.29 EPS and $11.02 billion in revenue. The upside was fueled by strong demand for new footwear launches, a bright spot under new CEO Elliott Hill’s early leadership as he works to revitalize the brand.
However, optimism was short-lived after CFO Matthew Friend signaled a mid-teens percentage decline in Q4 sales, steeper than the 12.2% drop expected by analysts. The company also warned that discounting efforts to clear excess inventory could further weigh on fourth-quarter performance.
The update triggered a sharp reversal in sentiment, as investors digested the impact of continued demand softness, especially in key markets. In Q3, overall revenue fell 9%, with North American sales plunging 21% to $1.1 billion, and Greater China revenue dropping a staggering 42% to $421 million.
Despite exceeding profit expectations this quarter, Nike is clearly navigating a challenging retail environment, with regional headwinds and margin pressures clouding its near-term outlook.
Nike Upgraded to Overweight as Strategic Marketplace Cleanup Signals Recovery Potential
Piper Sandler analysts upgraded Nike (NYSE:NKE) from Neutral to Overweight, raising the price target on the stock to $90 from $72. The upgrade reflects growing confidence in Nike's recovery trajectory as the company takes decisive steps to address inventory challenges and reposition for future growth.
Under the leadership of CEO Elliott Hill, Nike has accelerated efforts to clean up its marketplace by reclaiming products and offering markdown support to retail partners. These measures aim to streamline inventory and restore a pull-market dynamic, which could lead to a visible turnaround entering fiscal 2026. Despite lingering negativity in buy-side sentiment—evidenced by a significant increase in short interest since September—this proactive approach positions Nike for long-term success, according to the analysts.
The timeline for transitioning back to a pull-market environment, driven by renewed product innovation, remains a central debate among investors. Piper Sandler’s analysis outlines a bottom-up sales scenario in which Nike halves its penetration of classic franchise products and achieves an 80/20 full-price-to-off-price sales mix. This shift could realistically materialize within three quarters, accelerating the company’s path to recovery.
Nike Upgraded to Overweight as Strategic Marketplace Cleanup Signals Recovery Potential
Piper Sandler analysts upgraded Nike (NYSE:NKE) from Neutral to Overweight, raising the price target on the stock to $90 from $72. The upgrade reflects growing confidence in Nike's recovery trajectory as the company takes decisive steps to address inventory challenges and reposition for future growth.
Under the leadership of CEO Elliott Hill, Nike has accelerated efforts to clean up its marketplace by reclaiming products and offering markdown support to retail partners. These measures aim to streamline inventory and restore a pull-market dynamic, which could lead to a visible turnaround entering fiscal 2026. Despite lingering negativity in buy-side sentiment—evidenced by a significant increase in short interest since September—this proactive approach positions Nike for long-term success, according to the analysts.
The timeline for transitioning back to a pull-market environment, driven by renewed product innovation, remains a central debate among investors. Piper Sandler’s analysis outlines a bottom-up sales scenario in which Nike halves its penetration of classic franchise products and achieves an 80/20 full-price-to-off-price sales mix. This shift could realistically materialize within three quarters, accelerating the company’s path to recovery.
Nike Stumbles Despite Beating Q2 Expectations, Shares Slide 7% on Weak Outlook
Nike (NYSE:NKE) shares dropped more than 7% in pre-market today despite exceeding expectations for its fiscal second-quarter earnings. While the company’s initial results impressed, disappointing guidance and updates during the earnings call weighed heavily on investor sentiment.
For the quarter, Nike reported earnings per share of $0.78, surpassing analyst estimates of $0.65. Revenue totaled $12.4 billion, also ahead of the $12.18 billion expected. However, the numbers reflected challenges, with revenue down 8% year-over-year and Nike brand sales declining 7% to $12 billion. Gross margin contracted by 100 basis points to 43.6%, impacted by steeper discounts and shifts in sales channels.
China emerged as a weak spot for the sportswear giant, with sales plummeting 27% to $375 million, underscoring persistent difficulties in one of Nike’s key growth markets.
Looking forward, Nike’s projections for the third and fourth quarters added to concerns. The company expects Q3 revenue to drop by a low double-digit percentage, missing market expectations of an 8% decline. Additionally, it warned of an even steeper revenue decline in the fourth quarter, falling short of the anticipated 6% drop.
Nike Stumbles Despite Beating Q2 Expectations, Shares Slide 7% on Weak Outlook
Nike (NYSE:NKE) shares dropped more than 7% in pre-market today despite exceeding expectations for its fiscal second-quarter earnings. While the company’s initial results impressed, disappointing guidance and updates during the earnings call weighed heavily on investor sentiment.
For the quarter, Nike reported earnings per share of $0.78, surpassing analyst estimates of $0.65. Revenue totaled $12.4 billion, also ahead of the $12.18 billion expected. However, the numbers reflected challenges, with revenue down 8% year-over-year and Nike brand sales declining 7% to $12 billion. Gross margin contracted by 100 basis points to 43.6%, impacted by steeper discounts and shifts in sales channels.
China emerged as a weak spot for the sportswear giant, with sales plummeting 27% to $375 million, underscoring persistent difficulties in one of Nike’s key growth markets.
Looking forward, Nike’s projections for the third and fourth quarters added to concerns. The company expects Q3 revenue to drop by a low double-digit percentage, missing market expectations of an 8% decline. Additionally, it warned of an even steeper revenue decline in the fourth quarter, falling short of the anticipated 6% drop.
