Nike (NKE) reported its fiscal first-quarter earnings, beating EPS estimates but missing slightly on revenue expectations. The company posted earnings of $0.70 per share, exceeding the consensus of $0.52. However, revenue came in at $11.6 billion, slightly below the $11.65 billion estimate and down 10% year-over-year. Key metrics included a 13% decline in Nike Direct sales, led by a 20% drop in Nike Brand Digital, while wholesale revenues fell 8%. Gross margin, however, expanded by 120 basis points to 45.4%, benefiting from lower product costs and pricing actions.
Geographically, Nike experienced a mixed performance. North American revenue dropped 11% to $4.83 billion, while Europe, the Middle East, and Africa (EMEA) saw a 13% revenue decline. In Greater China, revenues decreased by 4% to $1.67 billion, although that was slightly better than analyst expectations. The Asia Pacific and Latin America (APLA) segment also faced a 7% decline. Meanwhile, Converse, Nike’s subsidiary, posted a 15% revenue drop to $501 million.
Guidance was a significant focus during the earnings call, but Nike withdrew its full-year fiscal 2025 outlook due to the ongoing CEO transition. CFO Matthew Friend noted that the company would provide quarterly guidance for the remainder of the year. For Q2, Nike expects revenue to decline by 8-10%, with gross margins likely to shrink by 150 basis points. The company also postponed its previously scheduled Investor Day due to the leadership change, leaving investors without clear forward-looking guidance.
The CEO transition is set for mid-October, with long-time Nike veteran Elliott Hill taking over from current CEO John Donahoe. Investors are optimistic about Hill's return, given his extensive experience at Nike, particularly in managing commercial and marketing operations. Analysts believe Hill’s leadership could help Nike address rising competition and a lack of product innovation, challenges that have plagued the company under Donahoe’s tenure. Hill’s appointment is seen as a critical move to revive Nike’s slowing sales and declining market share.
Nike is facing growing competition from brands like On Holding (ONON) and Deckers' Hoka brand, which have gained market share in both running and lifestyle footwear categories. On Holding has thrived, with its stock up 83% in 2024, thanks to strong consumer demand for its products. Similarly, Deckers’ Hoka brand has performed well, contributing to Deckers’ stock rising nearly 40% this year.
In addition to competition, Nike's challenges stem from its focus on direct-to-consumer (DTC) sales, which reduced its presence in wholesale channels, giving competitors more room to grow. While Nike aims to regain its foothold in the wholesale market, it is an uphill battle as rivals solidify their positions. Hill's immediate task will be navigating these competitive pressures while rejuvenating Nike's product lineup and marketing strategy.
Nike's stock reacted negatively to the Q1 results and guidance withdrawal, dropping nearly 6% in after-hours trading. Despite a brief rally following Hill's appointment in September, Nike shares are still down 18% year-to-date and remain below key technical levels. Investors will be closely watching Nike's performance in the upcoming quarters under its new leadership as the company works to regain momentum.