Nike wants to sell fewer classic sneakers, roll out more new ones in bid to revive demand

By Bill Peters

'A comeback at this scale takes time,' Nike CFO says on earnings call

Shares of Nike Inc. tumbled after hours on Thursday after the athletic-wear giant dimmed its expectations for the year as it grapples with wobbling consumer demand, cuts production on lower-selling classic sneakers and waits for potential gains from newer shoes to take hold.

"A comeback at this scale takes time," Chief Financial Officer Matthew Friend said during Nike's (NKE) earnings call after the closing bell Thursday.

The company's stock was down 13.2% this year through Thursday's close, and was sliding another 12.4% after hours.

Nike said that the broader expansion of sports and the ongoing popularity of athleisure gear are positive long-term trends for the company, even as looser-fitting clothes gain popularity. And as it tries to make newer products a larger part of its business, Nike said it has also made efforts to speed up its response to consumer preferences and spur its manufacturers to hasten product testing and production.

But it tempered its outlook for fiscal 2025. Management said it expects sales over that period to be down "mid-single digits." In March, they said they expected sales to grow. The company on Thursday also said it expected a roughly 10% year-over-year drop in first-quarter sales.

During the call, Chief Executive John Donohoe said that fiscal 2025, which will end around the end of next May, would be a "transition year," as more than two years of inflation keep consumers cautious. Meanwhile, fast fashion and social media have sped up fashion cycles, forcing brands to recalibrate accordingly.

For its fiscal fourth-quarter, Nike reported net income of $1.5 billion, or 99 cents a share. That compared with $1.03 billion, or 66 cents a share, in the same quarter last year.

Adjusted for restructuring charges, Nike earned $1.01 a share. Revenue dipped 2% to $12.6 billion.

Analysts polled by FactSet expected Nike to report adjusted earnings of 84 cents a share, on sales of $12.86 billion.

Sales in the segment that includes Nike's online shop and its own physical stores fell 8%, and digital sales alone fell 10%. However, sales in its wholesale segment, which sells shoes and other gear through other retailers, were up 5%.

Friend cited declines in Nike's Jordan brand and other lifestyle offerings during the quarter, even though demand for its sneakers geared more specifically toward sports were better. Store traffic also fell in China, while trends were uneven across Europe and the Middle East.

Weaker traffic, more aggressive markdowns and lower sales of some classic footwear hit digital sales. Friend said the company was "advancing" its timeline to "tighten the total supply of certain classic footwear franchises."

Analysts have said that easier comparisons, along with the upcoming Summer Olympics in Paris, could help Nike's financial results. And executives on Thursday called out excitement surrounding the WNBA - and players like Caitlin Clark and Sabrina Ionescu - and bigger investments in fitness offerings as potential drivers for the months ahead.

But expectations before Thursday were already low, amid worries about continued consumer caution.

Nike has tried to answer with new products - be it an expansion of its Jordan brand beyond basketball, new "Air" technology or new women's sneakers and clothing. But it has laid off staff and cut costs.

And after years of trying to sell more product on its own - via e-commerce and its own physical stores - Nike has said it would focus more on selling and marketing through outside retailers. It also said it would take steps to make in-store displays more attractive.

Donohoe, during the call, said a bigger focus on health worldwide would still benefit the company. He was also still optimistic on the benefits of athleisure, even though some analysts have their doubts.

"One of the derivatives of the post-COVID environment [is] you don't have to go to the gym or the field," he said. "Working out in your back yard, or talking a walk - sports is happening in many more places."

-Bill Peters

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06-27-24 1934ET

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