Nike shares hit after withdrawal of FY25 forecast amid weak Q1, CEO change

Shares of Nike Inc. were down around 6 percent in the extended trading on Tuesday on the NYSE and are currently down around 5 percent in pre-market activity after the sportswear giant warned on weak revenues in its second quarter, withdrew its revenue forecast for fiscal 2025, and postponed investor day. The move comes as the company reported weak results in its first quarter, even as earnings beat the market view.

According to the firm, the decisions provide the newly appointed CEO Elliott Hill with the flexibility to reconnect with its employees and teams, evaluate the current strategies and business trends, and develop the firm's plans to best position the business for fiscal 2026 and beyond.

It was on September 19 that Nike announced the appointment of Hill, a Nike veteran with over 32 years of experience with the company, as its President and Chief Executive Officer, effective October 14. He succeeds John Donahoe, who has decided to retire from the roles and the firm.

In its first-quarter earnings call, Nike's Executive Vice President and Chief Financial Officer Matthew Friend said, "We all look forward to working with Elliott as he leads NIKE's next chapter. Given our CEO transition and with three quarters left in the fiscal year, we are withdrawing our full-year guidance. We intend to provide quarterly guidance for the balance of the fiscal year."

Outlook

For the second quarter, the company expects revenues to be down in 8 to 10 percent range, and gross margins to be down approximately 150 basis points. Nike noted that higher promotions, channel mix headwinds, and supply chain deleverage would more than offset lower product costs and a decreasing benefit from strategic pricing actions.

Further ahead, Nike said its outlook for the near term has moderated, while it remains optimistic about the long-term opportunities for sport and for NIKE in China.

For fiscal 2025, the company previously expected revenue to be down mid-single digits with the first half down high single digits. While announcing the third-quarter results in March, the company was expecting revenue and earnings to grow compared to the prior year, while revenue in the first half was expected to be down low single digits.

Nike now noted that its revenue expectations have moderated since the start of the year, given traffic trends on NIKE Digital, retail sales trends across the marketplace, and final order books for spring. Franchise management actions will continue throughout the year.

However, Nike continues to see indications of slight second-half improvement in revenue trends versus the first half as it plans to introduce and scale newness and innovation across the marketplace. Gross margins are now expected to decline versus the prior year due to incremental headwinds.

Further, the company projects Jordan brand and NIKE Digital to be down double digits for fiscal 2025.

The company's men's and women's lifestyle business, which was planned down double digits in the first quarter, are expected to continue these declines through the year.

Q1 Results

In its first quarter, Nike's net income dropped to 1.05 billion dollars or 0.70 cents per share from 1.45 billion dollars or 0.94 cents per share in the same quarter last year. Analysts polled by Thomson Reuters expected the company to report earnings of 0.52 cents per share for the first quarter. Analysts' estimates typically exclude special items.

However, gross margins expanded 120 basis points to 45.4 percent on a reported basis, primarily due to lower NIKE brand product costs, lower warehousing and logistics costs, and benefits from strategic pricing actions in the prior year.

Quarterly revenues were 11.59 billion dollars, down 10 percent on a reported basis and down 9 percent on a currency-neutral basis. Analysts expected revenue of 11.65 dollars billion for the quarter.

NIKE Brand revenues fell 10 percent, due to declines across all geographies. NIKE Direct revenues fell 13 percent, primarily due to a 20 percent decrease in NIKE Brand Digital, partially offset by a 1 percent increase in NIKE-owned stores.

Wholesale revenues were down 8 percent.

In North America, revenue was down 11 percent, and the drop was 12 percent in EMEA, and 2 percent in APLA, and 3 percent in Greater China.

On the NYSE, Nike shares closed Tuesday's regular trading at 89.13 dollars, up 0.83 percent. Following the earnings report and conference call, the shares were down 5.92 percent in the extended trading, at 83.85 dollars.

In pre-market activity on Wednesday, the shares are currently trading at 84.50 dollars, down 5.2 percent.(DPA)