Nike’s Revenue Under Pressure

Image: Nike’s shares have languished of late, and a comeback will take some time.

By Brian Nelson, CFA

On June 27, Nike (NKE) reported disappointing fourth quarter fiscal 2024 results and issued an outlook for fiscal 2025 that came up short relative to expectations. Revenue in the quarter fell 2%, missing the consensus estimate, but was flat on a currency-neutral basis. Revenue for its Nike brand advanced 1% on a currency-neutral basis, while Nike direct revenue fell 7% on a currency-neutral basis. Wholesale revenue was up 8% on a currency-neutral basis, while revenues for Converse dropped 17% on a currency-neutral basis.

Nike’s guidance for 2025 wasn’t very encouraging. Here’s what the executive team said on the conference call:

Now let me turn to our fiscal 2025 financial outlook. We are managing a product cycle transition with complexity amplified by shifting channel mix dynamics. A comeback at this scale takes time. With this in mind, we’ve considered a number of factors and scenarios in revising our outlook for fiscal 2025. Most importantly, this includes timelines and pacing to manage marketplace supply of our classic footwear franchises, lower NIKE Digital growth, especially in the first half of the year due to lower traffic on fewer launches, planned declines of classic footwear franchises given Q4 trends, as well as reduced promotional activity, increased macro uncertainty, particularly in greater China, with uneven consumer trends continuing in EMEA and other markets around the world, and sell into wholesale partners as we scale product innovation and newness across the marketplace and finalize second half order books. Taking all of this into consideration, we now expect fiscal 2025 reported revenue to be down mid-single digits, with the first half down high single digits. Foreign exchange headwinds have also worsened and will now have a one-point translational impact on revenue in fiscal 2025.

Now turning to our first quarter, we expect first quarter revenue to be down approximately 10%. This reflects more aggressive actions in managing our classic footwear franchises, continuing challenges on NIKE Digital, muted wholesale order books with newness not yet at scale, a softer outlook in greater China, and a number of quarter-specific timing factors. We expect first quarter gross margins to be in line with the full year guidance. And we expect first quarter SG&A to be at mid-single digits, as we hold operating overhead flat, while investing in key brand moments, including EC ‘24 and the Paris Olympics games. For NIKE, inspiration starts with the athletes we serve. Their dreams motivate us to create the most innovative product in sport and tell stories that reach millions of people around the world. Above all, they remind us of the hard work and the hustle that is required to win. 

Nike retains one of the strongest brand names across our coverage universe, and customer loyalty remains a key attribute to a bull case for shares. However, the company’s fiscal 2025 will be challenging, with considerable weakness during the first quarter of fiscal 2025. We like Nike’s business model, but we remain on the sidelines as we adjust our valuation model to reflect the lower-than-expected fiscal 2025 performance. 

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