NKE
DECK
In a surprising twist, Nike (NYSE: NKE) has predicted a notable dip in their fiscal 2025 revenue, sending stocks tumbling by over 12% in after-hours trading. This development comes as consumer interest shifts towards emerging brands such as On and Hoka, leading to a decline in demand for Nike's renowned sneakers.
Analysts had been optimistic, anticipating a modest 0.91% growth. However, Nike's projections now suggest a mid-single-digit percentage decrease, underscoring the challenging market dynamics. Additionally, the fourth-quarter revenue fell short of expectations, marking another hurdle for the sportswear giant. If current trends persist, Nike's market value could take a hit of more than $15 billion by Friday.
The company's concerted efforts to boost sales through its direct-to-consumer channels, particularly in North America, have yet to yield the desired results. The allure of rival brands like On and Deckers' Hoka (NYSE: DECK) is proving too strong for many customers to resist. Interestingly, the apprehension also spread to these competitors, causing their stocks to dip by 1% to 2% in post-market trading.
In a bid to reverse the downtrend, Nike has taken several measures. The company is scaling back on overstocked brands like Air Force 1 and investing in improving its running shoes. Expect more performance-boosting features, such as increased midfoot cushioning for better stability. Nike is also introducing a new version of the beloved Air Max line.
The upcoming Olympics offer Nike a ray of hope. They’re betting big on the global event to reclaim market share, planning to spotlight performance products like the Alphafly 3 racer and the Pegasus running shoe. "Nike is attempting to weave a tale of reinvention," observed Neil Saunders, an analyst at GlobalData. However, their 2025 projections signal turbulence and their current actions may not yield the expected returns next year."
Nike’s hurdles aren’t confined to North America alone. According to CFO Matthew Friend, there's a notable dip in in-store traffic, particularly in factory outlets, which speaks to the economic pressure value-conscious consumers face. Nike plans to unveil a refreshed footwear line priced under $100 to attract budget-minded customers.
The company’s market share in the U.S. sports footwear segment declined slightly from 35.40% in 2021 to 34.97% in 2023. Adding to the woes, weak international demand, especially in China, further dampens sales prospects. Store traffic in China plummeted by double digits during the March-May quarter, with China contributing 14.7% to Nike's 2024 revenue, while North America made up 42%.
Nike is rallying behind its pure sports roots with the Paris Olympics approaching. CEO John Donahoe emphasized, "The Paris Olympics provides a pinnacle moment for us to articulate our vision of sport globally, driven by breakthrough innovations and a brand campaign that will command attention." He reiterated that "putting sport back at the center of everything we do, serving the athlete" is paramount for Nike.
Despite some bright spots in the fourth-quarter earnings report, such as a 5% increase in wholesale business revenue, the direct-to-consumer sector saw an 8% decline. Overall, fourth-quarter net revenue edged down by 1.7% to $12.61 billion, falling short of the $12.84 billion forecast. Nevertheless, Nike's $2 billion cost-saving initiatives, including layoffs, enabled it to post adjusted earnings of $1.01, beating expectations of 83 cents.
Looking ahead to the first quarter, Nike forecasts a steep 10% drop in revenue, a significant deviation from the anticipated 3.16% decrease.
