Nike's sales in the last quarter fell short of expectations and it withdrew its full-year guidance for the new fiscal year.
On October 1, local time, Nike Inc. (NYSE: NIKE) released its financial results for the first quarter of fiscal year 2025 ended August 31, 2024. The revenue in the quarter was $11.6 billion, which fell short of market expectations and fell 10% year-on-year; the net profit was 1.051 billion US dollars, a year-on-year decrease of 28%; Gross margin increased by 1.2 percentage points year-over-year to 45.4%, exceeding market expectations, mainly due to lower costs for NIKE brand products, lower warehousing and logistics costs, and the benefit of strategic pricing initiatives in the prior year.
Financial data for the quarter
It is worth noting that Nike's new CEO is about to take office. On September 19, Nike Inc. announced that the company's board of directors has appointed Elliott ·Hill as the company's president and chief executive officer, effective October 14, 2024, a four-year veteran of Nike, who has led Nike's global team, brand and business performance.
During the call, Matt·hew Friend, Nike's executive vice president and chief financial officer, said that the board believes Hill is the right leader to drive Nike's next phase of growth. In anticipation of the new CEO's appointment, allowing him to reconnect with the company's team, employees, and more flexibility to evaluate and plan for current and fiscal 2026 strategic positioning and business trends, the company will withdraw its full-year FY2025 results, provide quarterly guidance for the remainder of the fiscal year, and postpone investor day activities.
At the same time, Flender also mentioned on the call that he thanked the company's former CEO John Donahoe for his contribution to Nike, which enabled the company to survive the pandemic and major supply chain disruptions, accelerate the company's digital transformation, and launch new Nike community investments around the world.
With revenue expected to fall by at least 8% in the fiscal second quarter, the new CEO faces challenges returning to Nike
During the quarter, Nike Inc. was already aggressively adjusting its product portfolio and reinvigorating the brand's momentum through sports. But it will take time for the scale to recover, and the company has not yet turned the situation around. Specifically, Flender noted that "the company's unit sales were lower than expected in the quarter, partially offsetting the higher average selling price, and Nike direct sales traffic fell more than expected." We saw particularly weak traffic across Nike's online channels and partner stores in Greater China. ”
Overall, Flender noted that the results for the fiscal first quarter were broadly in line with expectations. From strong momentum in key sports areas to an accelerated pace of new products and innovations, the company has seen early victories. As Hill returns to lead Nike's next phase of growth, the company's team is energized.
Looking specifically at the business data, the performance of the two major brands NIKE and Converse in the quarter was challenging. Among them, NIKE brand revenue was 11.1 billion US dollars, a year-on-year decrease of 10%; Converse's revenue was $501 million, down 15% year-over-year. According to the financial report, the revenue of both brands declined in all regions.
During the call, Flender said that Nike saw growth in many sports dimensions during the quarter, mainly driven by men's fitness, football and men's and women's running shoes, and also saw clear signs of accelerated innovation. In the coming quarters, it is expected that the proportion of innovation and new products in the total footwear business will continue to grow.
CHANNELLY, NIKE'S DIRECT SALES REVENUE WAS $4.7 BILLION, DOWN 13% YEAR-OVER-YEAR, PRIMARILY DUE TO A 20% DECLINE IN ONLINE REVENUE FROM THE NIKE BRAND, PARTIALLY OFFSET BY A 1% INCREASE IN NIKE'S OWN STORE REVENUE. Wholesale revenue was $6.4 billion, down 8% year-over-year.
In the fourth quarter of fiscal 2024, Nike executives pointed out that due to weak online sales, in addition to the first decline in the lifestyle business since the outbreak of the pandemic in the fourth fiscal quarter, mainly including the poor performance of classic series with a high proportion of online sales such as Air Force1, AirJordan1 and Dunk. However, during the quarter, Nike began to actively adjust its product portfolio, continuing to reduce the proportion of classic footwear businesses such as AirForce1, Dunk and AirJordan1.
Flender said that online sales of AirForce1, Dunk and AirJordan1 combined fell by nearly 50% during the quarter, with the Jordan brand alone down by double digits in the quarter, while seeing a much better sales trend on the wholesale side, "We are aggressively rebalancing product distribution to the channels with the most traffic to maximize the health of the franchise and achieve full price...... As expected, as we tighten market supply, the revenue decline from these franchises in the first quarter is likely to be greater than that of the overall business, and we expect this trend to continue to impact our reported revenue in the coming quarters. At the same time, Flender said on the call that it will continue to work hard to improve the profitability of both direct sales and wholesale. Nike's investments in its DTC business model (direct-to-consumer), such as increasing its full-price product portfolio, continue to see opportunities to improve profitability.
Previously, Nike lowered its forecast for fiscal 2025 when it announced its fourth-quarter 2024 results at the end of June due to the company's slowdown in online sales, reduced franchise plans for classic footwear, "increased macro uncertainties" in Greater China, and "uneven consumption trends" across markets. This time, Nike pointed out on the call that it expects revenue to decline by 8% to 10% in the second quarter, and gross margin is expected to decline by about 1.5 percentage points as promotions are intensified.
Looking ahead, Flender noted on the call that Nike's revenue is expected to slow since the beginning of the year, given the trend of Nike online retail across the market and the flow of final orders in the spring, and that the "franchise management action" will continue throughout the year, and its impact is expected to be similar to that of the first quarter. Feedback from partners on future product lines has been overwhelmingly positive, but brands are highly competitive in the market today, and it will take time to expand market share. As the company plans to launch and expand innovative products across the market, it also continues to see signs of a slight improvement in revenue trends in the second half of the year compared to the first half.
In addition, with the imminent appointment of Nike's CEO, the market is also expecting Hill, which has a high reputation among retail partners, to rebuild tensions with wholesalers, reverse Nike's declining performance, and most importantly, accelerate the development and innovation of new products.
The company is optimistic about the market outlook after seven consecutive revenue increases in Greater China
Nike's sales in Greater China for the quarter were $1.666 billion, beating market expectations, down 4% year-on-year, EBIT down 4%, and North America sales down 11% year-on-year.
Revenue by region
Earnings before interest and taxes (EBIT) by region
This comes after Nike China posted positive growth for seven consecutive quarters, but Nike had warned that the "outlook is weak." In the 2024 fiscal year conference call, Nike executives said that due to the macro situation, Nike's traffic across all channels in China began to decline in April.
Flender said that the demand for the classic series is strong in the Chinese market, and Jordan has a large business in Greater China, which the company is also closely monitoring and managed. At the same time, Nike's story in Greater China in the areas of innovation and sports performance has received good feedback from the market, and the demand for innovation in China is significantly higher than in other markets, "innovation accounts for the highest proportion of China's business portfolio, while other regions do not".
Talking about the performance of the Chinese market, Flender said that the company has a long-term perspective, although it has lowered its short-term forecast for the Chinese market for the rest of the year, the growth of the Chinese market is still supported, and Nike is optimistic about the long-term development prospects in Greater China. Nike will continue to leverage its innovative strengths to provide more support to the Chinese market, especially in the areas of products, digital platforms and supply chains, to continue to meet the needs of local consumers. We are confident in Nike's long-term development in Greater China and the broad prospects of China's sports industry."
As of the close of trading on October 1, Nike's stock price closed at $89.13 per share, up 0.83%, and fell more than 6% after hours. It's down nearly 17% year-to-date.