Source – Patrick T. Fallon
Nike, the global sportswear giant, showcased a resilient performance in its fiscal 2024 third quarter, surpassing Wall Street estimates on both the top and bottom lines. Despite a slowdown in sales growth in China, the company’s strong showing in North America and strategic pricing adjustments buoyed its financials.
For the three months ending Feb. 29, Nike reported earnings per share of 77 cents, exceeding analysts’ expectations of 74 cents. Revenue stood at $12.43 billion, outpacing the anticipated $12.28 billion. However, the reported net income of $1.17 billion marked a decline from $1.24 billion a year earlier, primarily due to restructuring charges.
Strategic pricing adjustments and lower freight rates
Notably, North America emerged as a bright spot for Nike, with sales climbing approximately 3% to $5.07 billion, surpassing estimates of $4.75 billion. Conversely, sales in other regions fell short of expectations. In China, sales reached $2.08 billion, slightly below analysts’ forecasts, indicative of a deceleration in growth following Covid-19 lockdowns. Similarly, Europe, the Middle East, and Africa witnessed a 3% revenue decline, while Asia Pacific and Latin America reported a modest 3% rise, all missing analyst projections.
Following the earnings release, Nike shares initially surged by 5% but later retreated by as much as 7% after the company guided for the current quarter and fiscal 2025. Despite reaffirming its sales outlook for fiscal 2024, with expected revenue growth of 1%, Nike anticipates a subdued performance for the current quarter, with revenue projected to increase marginally.
Finance chief Matthew Friend attributed anticipated gross margin growth to strategic pricing adjustments, lower freight rates, and improved supply chain efficiency. However, increased markdowns and shifts in consumer purchasing behavior towards online channels pose challenges. The company expects gross margins to expand by approximately 1.2 percentage points for the full fiscal year, slightly below analysts’ estimates.
Looking ahead to fiscal 2025, Nike anticipates revenue and earnings growth, although specific projections were not disclosed. Analysts had expected revenue to increase by 5.6%, suggesting a more conservative outlook from the company. Friend indicated a cautious approach for the first half of fiscal 2025, reflecting a subdued macroeconomic environment worldwide.
No clear roadmap unveiled
Amidst softening demand for discretionary items like apparel and footwear, Nike has intensified its focus on cost reduction and operational efficiency. A restructuring plan announced in December aims to achieve $2 billion in cost savings over three years. Additionally, the company recently streamlined its workforce, shedding 2% of employees to prioritize investments in key growth areas.
While Nike’s cost-cutting initiatives contributed to better-than-expected earnings, challenges persist in maintaining market leadership. Analysts point to a perceived loss of focus in product assortment and lagging innovation, potentially ceding market share to competitors. Despite recent product launches, such as the Book 1 basketball shoe, concerns remain regarding Nike’s long-term strategic direction and ability to drive sustained growth.
Senior analyst Jessica Ramirez noted Nike’s efforts to refresh its product offerings but emphasized the uncertainty surrounding the company’s plans. With no clear roadmap unveiled, investors await further clarity from Nike regarding its strategy amidst evolving market dynamics.
