TLDR
- Nike reports fiscal Q3 earnings on Thursday with analysts expecting adjusted earnings of 30 cents on $11 billion in revenue
- Expected to show steepest revenue decline in nearly five years (11.5%) due to weak consumer demand
- New CEO Elliott Hill is implementing a turnaround plan to address inventory issues and rebuild partnerships
- Nike stock is down 3.6% this year and 27% over the past 12 months
- Recent initiatives include new running shoe launches, a partnership with Skims, and increased marketing efforts
Nike is set to report its fiscal third-quarter earnings on Thursday, with analysts predicting the sportswear giant’s steepest revenue decline in nearly five years. This comes as new CEO Elliott Hill works to implement a turnaround strategy amid challenging market conditions.
Wall Street expects Nike to post adjusted earnings of 30 cents per share on revenue of $11 billion. This represents an estimated revenue decline of 11.5% compared to the same period last year.
The company’s stock closed 0.5% lower at $72.99 on Wednesday. Nike shares have fallen 3.6% this year, roughly in line with the S&P 500’s 3.5% decline.
Over the past 12 months, the stock has dropped 27% while the broader market gained 8.6%. This performance gap highlights the challenges Nike has faced in the post-pandemic retail environment.
Recent data points to continued weakness in consumer engagement. Downloads of Nike mobile apps were down 35% year-over-year for the quarter, according to Sensor Tower.
Investor worries
Foot traffic at Nike stores also decreased by 11%, based on data compiled by Raymond James. These metrics suggest consumers remain hesitant to purchase non-essential sporting goods and clothing.
Inventory management remains a key issue for the company. Nike’s inventory stood at $8 billion in the quarter ended November 30.
Analysts believe the company has been forced to implement higher markdowns to clear out older inventory. This promotional pressure was highlighted when Foot Locker, a major Nike retailer, warned about margin impacts in its March 5 earnings report.
Hill, who took over as CEO in October, has acknowledged past missteps and is working to correct them. These include cutting ties with wholesale partners and relying too heavily on popular styles instead of innovating.
His turnaround strategy includes clearing out old inventory, investing in marketing and product innovation, and rebuilding partnerships with wholesalers. Recent initiatives include the launch of new running shoes like the Pegasus Premium and Vomero 18.
The company also announced a new partnership with Kim Kardashian’s womenswear company Skims and ran its first Super Bowl advertisement in 27 years. These moves have drawn some positive attention from investors.
Despite these efforts, analysts caution that Nike’s recovery will take time. Morningstar analyst David Swartz noted that “one or two snazzy new styles will not be enough” to get the company back on track for sales growth.
“It needs to create a whole new franchise, like a family of products that add billions in sales,” Swartz said. “That takes years.”
Analyst remains cautiously optimistic
Krisztina Katai of Deutsche Bank remains “cautiously optimistic” that shares have bottomed out. Her channel checks revealed “several green shoots emerging with what appears to be strong consumer interest in recent running shoe launches.”
Investors will be watching Thursday’s earnings call for more updates from Hill and his management team. The CEO is likely to emphasize the message he has been delivering since taking over: successful turnarounds require time, money, and patience.
“It continues to be a ‘show-me’ story,” said Jay Woods, chief global strategist at Freedom Capital Markets. “The question is, do investors have the patience?”
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