Nike shares fell in premarket trading following the sportswear company's announcement on Thursday that sales are expected to decrease to the low single digits during the first half of the fiscal year. This comes as the company makes efforts to adjust its product lineup to more closely align with consumer tastes.
Shares of the retailer were down more than 6% in premarket trading in New York after a post-earnings conference call on Thursday evening, in which executives revealed Nike had lost market share in running shoes.
Nike CFO Matt Friend told investors that reducing supplies of "classic" shoes, including Air Force 1 sneakers, was made to refocus efforts on new product development and upcoming launches.
For the first half of the year, Nike forecasts revenue will fall to the low single digits beginning in June. Bloomberg data shows analysts had projected a 4% rise in the first quarter and a 6% gain in the second.
Bloomberg Intelligence analyst Poonam Goyal said the dismal outlook for the year's first half "raises eyebrows" but expects innovation to continue at the world's largest sportswear company.
Despite the first-half slump, Nike expects revenue and earnings to grow next fiscal year, excluding the impact of an ongoing organizational restructuring plan amid weaker sneaker and apparel demand.
"We know Nike's not performing at our potential," CEO John Donahoe told investors, adding, "It's been clear that we need to make some important adjustments."
RBC Capital Markets analysts downgraded their recommendation on Nike to sector perform, citing organizational restructuring and product transition will increase uncertainty and guidance risk.
Here's what Wall Street analysts are saying (list courtesy of Bloomberg):
RBC Capital Markets, Piral Dadhania (cuts to sector perform from outperform)
- "Nike's unexpected first glance guide for 1H25E implies no revenue growth for cal 2024, which leaves little to play for in the near term"
- Sees the organizational restructuring and product transition over next few quarters adding further uncertainty and guidance risk
- There is no doubt Nike will emerge a better company in a better phase of its business cycle, but Dadhania prefers outperform-rated Adidas
- PT cut to $100 from $110
Piper Sandler, Abbie Zvejnieks (neutral)
- Near-term sales will be pressured by product lifestyle management as the company refocuses on product innovation and wholesale reinvestment
- "A lack of precedence on new product gives us limited conviction on what NKE's growth rate will look like exiting this transition period"
- Notes that reinvestment in wholesale channel will likely pressure high-teens operating margin targets
- PT lowered to $98 from $107
Morgan Stanley, Alex Straton (overweight)
- Guidance for 4Q and 1H both disappointed, and pushed the catalyst path of the stock out
- Nike's strategy "seems to be evolving in unexpected ways each quarter, lending credence to the market view that it feels reactive"
- Straton remains overweight on a near-term basis and still sees positive EPS revisions being possible in 2H, but she is "incrementally less constructive following the print"
TD Cowen, John Kernan (market perform)
- Revenue declines in 1H should put pressure on valuation as well as consensus estimates; Kernan's new FY25 EPS forecast is below consensus
- "Competitive environment and channel dynamics are more challenging than we can remember"
- PT cut to $91 from $104
Separately, Lululemon said Thursday that visits to US stores slowed and expects lower-than-expected sales outlook for the first quarter and full year.
Lululemon CEO Calvin McDonald told analysts on an earnings call that US consumers "are a little soft coming into the year." However, he pointed out that "all international markets, including Canada, are continuing their strong momentum."
Also, on Thursday, Darden Restaurants warned investors that low-income customers were quickly reducing their spending. Just weeks ago, budget retailer Dollar Tree warned of declining ticket prices.
