NKE Earnings Preview: Watching the turnaround plan and promotional activity
3min read Nike (NKE) is set to report Q2 FY25 earnings after the market close today, with consensus expectations for earnings per share (EPS) of approximately $0.60 and revenue of $11.68 billion. This represents a continuation of the company’s recent struggles, following a 10.4% revenue decline last quarter. Analysts are especially keen to see if Nike provides updated FY25 guidance after withdrawing it during the previous earnings report amidst a CEO transition.
Key Metrics to Watch
Investors will focus on revenue performance in core markets, including North America and China, where demand has been soft. Direct-to-consumer (DTC) trends, particularly in digital sales, will also be closely scrutinized as the company grapples with promotional pressures. Gross margin guidance will be critical, especially given ongoing markdown activity in key lifestyle franchises like Dunk and Jordan. Inventory levels will be another key metric as Nike continues efforts to clear excess stock while preparing for a potential turnaround in FY26.
Analyst Sentiment
Ahead of the report, analysts remain cautious. Wells Fargo and Deutsche Bank have recently lowered price targets and revenue expectations for Q3 and Q4, citing FX headwinds and elevated promotional activity. Stifel and UBS have characterized FY25 as a transition year, with challenges including competitive pressures and franchise management issues. Despite near-term concerns, there is optimism surrounding the potential for a reset under the new CEO and the company’s ability to revitalize growth in FY26.
The New CEO's Turnaround Plan
Elliott Hill, who officially took the helm on October 14, is expected to outline his strategy for reinvigorating Nike’s brand during the earnings call. Analysts will be listening for plans to address challenges in product innovation, distribution strategy, and franchise management. Hill’s deep experience within Nike and his existing relationships with retail partners are seen as assets, but analysts caution that a full recovery will likely take 18-24 months. Investors may welcome a “clean slate” approach if Hill signals further inventory resets and investment in the business to stabilize operations.
What to Watch Tonight
Beyond the numbers, the tone of the earnings call will be pivotal. Positive commentary on early traction from recent product innovations, such as running footwear, could boost sentiment. However, any further guidance cuts or indications of prolonged headwinds could weigh on the stock. Analysts generally agree that while sentiment remains subdued, signs of stabilization or a clear roadmap from the new leadership team could set the stage for Nike to rebuild investor confidence heading into FY26.
Revenue Decline Overshadows EPS Beat
Nike (NKE) posted Q1 FY25 earnings per share (EPS) of $0.70, exceeding analyst estimates of $0.52, aided by cost-cutting measures and a gross margin improvement to 45.4% from 44.2% last year. However, revenue fell 10.4% year-over-year to $11.59 billion, missing expectations of $11.65 billion. This marks the company's steepest revenue decline since the pandemic, raising concerns over its ability to regain growth momentum. Key regions, including North America (-11%) and Europe, Middle East, and Africa (EMEA, -13%), underperformed, while Greater China showed a smaller-than-expected 4% drop.
Analyst Concerns on Core Business Weakness
Analysts pointed to ongoing struggles in Nike's core categories, including running and basketball, and significant challenges in its digital and wholesale channels. Nike Direct revenue dropped 13%, reflecting persistent softness in digital traffic and a loss of market share to competitors such as Deckers (HOKA) and On Holdings. Wholesale revenue also declined by 8%, as competitors filled the shelf space left by Nike's strategic pivot to direct-to-consumer sales. Analysts at UBS and Citi expressed concerns over the prolonged timeline for a turnaround, particularly as Nike struggles with inventory management and muted consumer demand.
Key Factors Analysts Are Watching
The transition to new CEO Elliott Hill, effective October 14, is seen as critical to rebuilding Nike's retail partnerships and reinvigorating its product pipeline. Analysts are also focused on the potential for downward revisions to earnings estimates in FY25 and beyond, as Hill establishes a recovery strategy. UBS highlighted the risk that Hill may need to increase SG&A spending, which could compress margins further and push EPS below current expectations. Additionally, analysts are monitoring the performance of newer products, which showed double-digit growth, as a potential bright spot in the company’s future.
Market Reaction and Valuation Outlook
Nike shares plunged nearly 8% after the report, reflecting investor disappointment over the revenue miss and the withdrawal of FY25 guidance. The lack of near-term catalysts and the acknowledgment of prolonged recovery efforts have led several analysts to lower their price targets, with UBS now forecasting a bear-case scenario of $45 if SG&A pressures mount. Guggenheim, while cautious about the current challenges, noted that the stock’s valuation at current levels may present a favorable risk-reward ratio for long-term investors.
A Path Forward with New Leadership
Despite the weak results, there are glimmers of optimism tied to the CEO transition. Elliott Hill’s extensive experience within Nike and his focus on retail partnerships could help stabilize the business over the next 12 months. Analysts at Citi remain hopeful about Hill’s ability to deliver gradual improvements, particularly in areas like running footwear, which showed sequential growth this quarter. However, the consensus is that the turnaround will be a slow and methodical process, with significant investments required to restore sustainable growth.