Nike Earnings Preview- Investors await the new CEO's turnaround plan

Nike (NKE) is set to report its fiscal Q1 2025 earnings after the market close, with analysts expecting EPS of $0.52 and revenue of $11.64 billion. Investors are keenly watching the company’s updated guidance after its previous outlook suggested a mid-single-digit decline in revenue for FY25. Nike's guidance and its execution on product innovation will be key focal points, as the company tries to regain momentum in the face of increasing competition and softer demand in core markets.

A major development for Nike is the upcoming CEO transition, with current CEO John Donahoe stepping down on October 14, 2024, to be replaced by long-time Nike veteran Elliott Hill. Hill's return has been met with optimism, as many believe his deep understanding of Nike’s brand and retail partnerships will help revive the company's innovation engine. Investors are hoping Hill can reinvigorate Nike's product offerings and regain lost market share from competitors like On Holdings (ONON) and Deckers' HOKA.

The leadership change comes at a critical time for Nike, which has seen revenue stagnation and underperformance in key regions like North America. Under Donahoe’s leadership, Nike prioritized its direct-to-consumer (DTC) strategy, but recent quarters have revealed challenges, including a 10% drop in digital sales in Q4. While Donahoe's focus on digital channels initially seemed prudent, the company’s reliance on legacy products like the Air Force 1 shoe has stifled new product innovation, a challenge Hill will need to address.

Despite these headwinds, Nike’s CFO Matthew Friend has pointed to an expected improvement in the second half of FY25, driven by the launch of new products. The market will be listening closely for updates on this during the earnings call, especially given the company's previous struggles to reignite growth. Investors are also keen to learn if Nike’s upcoming Analyst Day, the first in seven years, will be postponed or provide more clarity on the company's long-term strategy.

Nike’s stock has been range-bound in recent quarters, with shares up about 10% since the CEO transition announcement. While the market is hopeful that Hill's leadership will catalyze a turnaround, near-term challenges remain, particularly as competitors continue to gain ground. Analysts expect that Hill’s efforts to re-establish strong retail partnerships and revamp Nike's product lineup will take time, suggesting a longer-term recovery.

The earnings report is expected to reflect the current state of Nike's struggles, with a sharp decline in revenue and EPS anticipated. However, with lower investor expectations, the focus will likely be on how the company plans to navigate through FY25. A detailed roadmap for product innovation and operational improvements under Hill's leadership could provide a positive setup for Nike moving forward.

Overall, Nike’s transition year, as dubbed by Donahoe, will be marked by significant changes in leadership and strategy. The company’s future performance under Hill’s direction will be critical to returning Nike to its former glory and regaining lost market share in a highly competitive athletic wear market.

Nike (NKE) reported a mixed Q4, beating earnings estimates but missing on revenue expectations. The company posted EPS of $0.99, surpassing the FactSet Consensus of $0.84, while revenue fell 1.6% year-over-year to $12.6 billion, below the expected $12.86 billion. Nike's gross margin improved by 110 basis points to 44.7%, thanks to a leaner inventory position, but revenue declines in key markets, particularly a 1% drop in North America, raised concerns about competitive pressure from rivals like Adidas, Puma, and On.

CEO John Donahoe referred to FY25 as a "transition year" for the company, which further dampened investor sentiment. While the company implemented cost-saving measures and buybacks to support EPS, sales weakness in core categories like lifestyle footwear, along with a 7% decline in direct-to-consumer (DTC) sales, signaled deeper struggles. The lack of innovation, particularly in lifestyle products like the Air Force 1, Air Jordan 1, and Dunk lines, contributed to Nike’s challenges as competitors made gains in market share.

Looking ahead, Nike revised its FY25 guidance downward, now forecasting a mid-single-digit decline in revenue, with a 10% drop expected in Q1. Despite some optimism about new product launches in the second half of FY25, this guidance fell short of previous expectations for positive growth. The stock reacted negatively, dropping 5.6% in after-hours trading as investors processed the revised outlook and concerns about market share losses.