Nike tries to rip off the band-aid for investors. Its stock price is feeling the sting

By Bill Peters

'We have yet to turn the corner,' CFO says, as Nike withdraws full-year outlook and postpones its investor day

Shares of Nike Inc. fell after hours on Tuesday after the sneaker maker tempered its sales expectations and said it would only offer shorter-term forecasts in the months ahead, in an effort to give its new chief executive space to carve a way forward after months of slumping demand.

The efforts to manage investors' expectations came as Nike (NKE) prepares to bring aboard Elliott Hill - a roughly three-decade veteran of the company who retired in 2020 - as its CEO on Oct. 14. John Donahoe, Nike's current CEO, will retire a day prior, after more than four years on the job.

During Nike's earnings call Tuesday, Chief Financial Officer Matthew Friend - the only executive taking questions during the event - said the company was withdrawing its full-year outlook, and said it would only provide quarterly financial forecasts during the rest of its fiscal year, set to run through May. The company is also postponing its investor day, a move some analysts expected.

"This provides Elliott with the flexibility to reconnect with our employees and teams, evaluate the current strategies and business trends, and develop our plans to best position the business for fiscal '26 and beyond," he said.

He added: "A comeback at this scale takes time, and while there are some early wins, we have yet to turn the corner."

Friend said the company expected an 8% to 10% drop in second-quarter sales.

Heading into the results, analysts were skeptical about Nike's ability to immediately revive its fortunes, as shoppers remain selective following sharp price increases and as the company faces steep competition. But some said Wall Street might be willing to look past current difficulties as they await more details on how Hill's leadership might be different.

Either way, shares of Nike fell 5.9% after hours on Tuesday, after finishing regular trading up 0.8%. As of the close of Tuesday's trading, the stock was down 17.9% so far this year.

For its fiscal first quarter, Nike (NKE) reported net income of $1.05 billion, or 70 cents a share, down from $1.45 billion, or 94 cents a share, in the same quarter last year.

Sales fell 10% year over year to $11.59 billion.

Analysts polled by FactSet expected Nike to report earnings per share of 52 cents, on revenue of $11.64 billion.

During the call, Friend said that traffic declines in Nike Direct - the segment that includes Nike's own physical stores and e-commerce sales - were worse than expected. Sales in that segment fell 13% during the quarter. Wholesale revenue, or sales to retailers - an area the company says it can improve on after their digital business took precedent - were down 8%.

Elsewhere, back-to-school trends stumbled. Demand in China, where the government is trying patch up the economy, also wobbled. Nike also noted disruptions stemming from efforts to pull back on selling classic sneakers, after flooding the market with Jordan 1, Air Force 1 and Dunk sneakers, a move the Wall Street Journal said watered down their appeal. Nike is hoping newer offerings, brought to market faster, will help fill the gap.

But the early wins, Friend said, included gains in men's fitness and men's and women's running shoes. The company, which faces competition from brands like On Running, has tried to make a bigger appeal to everyday runners. Friend also expressed optimism about new cushioning designs set to arrive in Nike's running shoes.

As Hill prepares to take over as CEO, Friend said that Hill helped revive growth in North America in 2010 - when the economy was still recovering from the Great Recession - not just with high-performance shoes and gear but by getting customers to buy into a broader culture of sports.

He added that the company was excited for Hill's return.

"You can feel the energy and the enthusiasm walking around campus," Friend said. "And we've heard nothing but excitement from our teammates around the world, including our alumni network, as well as our partners."

-Bill Peters

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10-01-24 2024ET

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