Shares in Nike (NYSE:NKE) tumbled in extended Wall Street dealings after the struggling sportswear titan delivered (1 Oct) a Q1 sales miss and downbeat full-year guidance. Investors headed for the exits on rising fears the turnaround at the trainers-to-soccer balls brand could take longer than expected.
CEO Elliott Hill also announced a major restructuring that will result in further job losses as he seeks to ‘position Nike for long-term growth’.
Q1 sales miss
Oregon-based Nike reported mixed results for the first quarter to 31 August. Earnings per share of 48 cents beat the 43 cents Wall Street was looking for. But Nike posted a 4% drop in revenue to $11.21 billion, below the $11.32 analysts expected.
| Divisional revenues | Q1 | Year-on-year change |
| North America ($m) | 5,127 | +2% |
| Europe, Middle East & Africa ($m) | 3,176 | -5% |
| Greater China ($m) | 1,180 | -22% |
| Asia Pacific & Latin America ($m) | 1,463 | -2% |
Source: Nike, Q1 results
Poor performances in Europe, Middle East and Africa (EMEA) and Greater China triggered the miss.
Revenues fell 5% in the former and 22% in the latter, where Nike faces fierce competition from international rivals and local Chinese brands alike. Alarmingly, sales in China have now fallen for nine successive quarters.
North America sales beat
However in North America, Nike’s largest market, sales grew 2% to $5.13 billion. That was ahead of the $5.11 billion Wall Street forecast with a boost from the FIFA World Cup.
‘We have more work to do in NIKE Sportswear, Jordan Brand and Greater China, and we’re taking deliberate actions to strengthen those businesses the right way for the long-term,’ insisted Hill.
Dave Denton, Nike’s new CFO, commented: ‘As we move forward, we remain focused on strengthening the health of our product portfolio, improving productivity across the enterprise and allocating resources with discipline to support long-term shareholder value.’
Gloomy guidance
For FY27, Nike forecast that revenues will decline by ‘high-single digits’, and said it expects adjusted earnings per share to be in the range of $1.15 to $1.35.
This tepid guidance suggests that restoring Nike to its former glory could take many more quarters, or even years.
Nike is a falling knife and we worry the stock has yet to bottom. The shares have now shed more than 50% over the past year and are down nearly 80% on a five-year view.
There were some positives in the Q1 update. These included solid revenue growth in North America, an uptick in gross margins to 42.8% and a 3% drop in inventories to $7.8 billion. And Hill is doing all the right things to revive Nike’s fortunes.
Sadly, Nike has surrendered market share to the likes of Adidas (ETR:ADS), Hoka, On and Chinese sportswear brands. And it may take years to win it back. Avoid for now.
