Nike's Sales Drop by Nearly a Billion Dollars During the Olympic
Nike's shares fell for the fourth consecutive time following the financial release, but this correction was less pronounced than in previous instances. Although the Company narrowly met its revenue targets and failed to offer positive signals for the future, it appears investors believe that the primary negative factors have already been factored in. Furthermore, the new CEO has garnered a degree of "trust credit" from stakeholders. However, the true impact of the report will only become evident today.
Quarterly revenue declined by 10% y/y to $11.6 billion, slightly missing consensus forecasts but aligning with the guidance issued three months prior. Regionally, domestic and EMEA sales faced the steepest declines, dropping 11% and 12% y/y, respectively, which is much worse than a quarter ago. In contrast, sales in China, which represent 15% of total sales, declined by only 4% y/y, defying more pessimistic expectations.
This quarter marks one of the most challenging periods Nike has faced in years. The Company is witnessing a significant erosion of its market share across critical markets and segments. Apparel and footwear sales have plummeted by 11% y/y, a stark contrast to the previous quarter. Direct sales are down by 13% y/y, and wholesale segments have declined by 8% y/y. The initial signs of this downward trajectory were evident last winter, in December 2023, when a dismal financial report and earnings call led to a more than 10% plunge in share value. Yet the current situation appears even more dire, with no clear indication that the downturn has hit its lowest point. Not even the Summer Olympics, which typically boost sales through increased consumer interest in sportswear, managed to reverse this negative trend. During the recent earnings call, management acknowledged the underperformance of key initiatives like the Nike Direct and Nike Digital franchise programs, which saw a sales decline of nearly 15% y/y. The outlook remains grim, with management forecasting that this trend is likely to persist, projecting a double-digit drop in revenue for FY2025.
Profit margins remain stable despite a dip in sales. The gross margin rose by 120 basis points to reach 45.4%, aligning with management's projections. However, demand creation expenses rose by 15% y/y, reaching $1.22 billion. Meanwhile, operating profit fell by 22% to $1.26 billion, even with a slight reduction in general and administrative expenses. As a result, the EBIT margin decreased to 10.9%, reflecting a decline of 1.6 percentage points compared to the previous year.
Nike reported quarterly diluted EPS of $0.70, surpassing the consensus forecast of $0.52. A significant driver of the Company's EPS growth has been its share repurchase program. In the recent quarter alone, Nike repurchased 14.8 million shares for a total of $1.2 billion. To date, the Company has spent over $10 billion of its $18 billion share repurchase program.
Following a comprehensive analysis of the financial report, we will revise the price target accordingly.
Georgy Vashchenko, equity analyst Freedom Finance Global:
Quarterly revenue declined by 10% y/y to $11.6 billion, slightly missing consensus forecasts but aligning with the guidance issued three months prior. Regionally, domestic and EMEA sales faced the steepest declines, dropping 11% and 12% y/y, respectively, which is much worse than a quarter ago. In contrast, sales in China, which represent 15% of total sales, declined by only 4% y/y, defying more pessimistic expectations.
This quarter marks one of the most challenging periods Nike has faced in years. The Company is witnessing a significant erosion of its market share across critical markets and segments. Apparel and footwear sales have plummeted by 11% y/y, a stark contrast to the previous quarter. Direct sales are down by 13% y/y, and wholesale segments have declined by 8% y/y. The initial signs of this downward trajectory were evident last winter, in December 2023, when a dismal financial report and earnings call led to a more than 10% plunge in share value. Yet the current situation appears even more dire, with no clear indication that the downturn has hit its lowest point. Not even the Summer Olympics, which typically boost sales through increased consumer interest in sportswear, managed to reverse this negative trend. During the recent earnings call, management acknowledged the underperformance of key initiatives like the Nike Direct and Nike Digital franchise programs, which saw a sales decline of nearly 15% y/y. The outlook remains grim, with management forecasting that this trend is likely to persist, projecting a double-digit drop in revenue for FY2025.
Profit margins remain stable despite a dip in sales. The gross margin rose by 120 basis points to reach 45.4%, aligning with management's projections. However, demand creation expenses rose by 15% y/y, reaching $1.22 billion. Meanwhile, operating profit fell by 22% to $1.26 billion, even with a slight reduction in general and administrative expenses. As a result, the EBIT margin decreased to 10.9%, reflecting a decline of 1.6 percentage points compared to the previous year.
Nike reported quarterly diluted EPS of $0.70, surpassing the consensus forecast of $0.52. A significant driver of the Company's EPS growth has been its share repurchase program. In the recent quarter alone, Nike repurchased 14.8 million shares for a total of $1.2 billion. To date, the Company has spent over $10 billion of its $18 billion share repurchase program.
Following a comprehensive analysis of the financial report, we will revise the price target accordingly.
Georgy Vashchenko, equity analyst Freedom Finance Global:
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