Nike reported a first-quarter profit that beat Wall Street’s forecasts on Thursday, but a fall in sales, a steep slump in Greater China and a warning that revenue will shrink again this fiscal year sent its shares to their lowest level since 2013.
A profit beat built on cost savings, not sales
Revenue for the three months to August 31 came in at $11.21 billion, down 4% from a year earlier and 5% on a constant-currency basis. Analysts had expected about $11.3 billion. Adjusted earnings were 48 cents a share, ahead of the roughly 44 cents forecast, though still below the 49 cents earned a year ago. Net income slipped to $712 million from $727 million.
Gross margin widened to 42.8%. Nike credited supply chain savings and favourable currency moves, partly offset by heavier discounting and a less favourable mix of sales channels. In other words, the earnings beat owed more to trimming costs than to selling more shoes and clothing.
China and Jordan Brand weigh heaviest
The weakest region was Greater China, where revenue fell 22% to $1.18 billion, or 26% excluding currency effects. Sales also declined in Europe, the Middle East and Africa. North America was a rare bright spot, growing 2%.
Among product lines, Jordan Brand dropped by a mid-teens percentage. Nike Direct, which covers the company’s own stores and digital platforms, fell 8% to about $4.1 billion, with digital sales alone down 13%.
A lower revenue forecast and a restructuring plan
Looking ahead, Nike said it expects full-year revenue to decline by a high-single-digit percentage. The warning was not entirely unexpected, since the company said in June that sales would probably fall through the first half of the fiscal year. Even so, it confirms that the recovery will take longer than investors hoped.
Nike also set out a restructuring programme called Pace. It includes a new campus in India, a reorganisation into three geographic regions and changes to the supply chain. The company is targeting $2.5 billion of cumulative savings through fiscal 2031, at a cost of about $1 billion in pre-tax charges. The programme is expected to involve job cuts, though the scale of the reductions has not been made clear.
A new finance chief’s first report
Thursday’s results were the first under chief financial officer Dave Denton, who joined from Pfizer. They also arrived almost two years after Elliott Hill took over as chief executive. In the earnings release, Hill said more work remains in Nike Sportswear, Jordan Brand and Greater China, and that the company is acting deliberately to strengthen those businesses for the long term.
Shares fall to a 13-year low
Nike stock closed the regular session at $35.15, down 0.71%, then fell by roughly 4% to 8% in after-hours trading, depending on the moment, touching levels last seen in September 2013. The shares have lost about 44% this year, and the company was recently dropped from the S&P 100 index after nearly two decades as a member.
Analysts are divided on how to read the quarter. Some say it looked like one they would have expected two or three quarters into a turnaround rather than two years in. Others argue that efficiency gains alone could lift earnings meaningfully if management stays disciplined. Either way, investors appear to want evidence that sales can grow again, not just that costs can fall.
What comes next
Nike returned about $610 million to shareholders during the quarter and ended it with $8.4 billion in cash and short-term investments, which gives it room to fund the overhaul. The next major checkpoint is a Capital Markets Day in November, where management is expected to give a clearer roadmap for the turnaround.
Because Nike is widely seen as a bellwether for sportswear and consumer spending, its results are being read well beyond its headquarters in Beaverton, Oregon. Weak demand in China, heavier discounting and shifting retail channels are pressures that rivals face as well. For now, the company’s own message is that sales will fall before they stabilise.
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