Nike claims it is in the “middle innings” of a large-scale turnaround. Investors, however, remain unconvinced and battered company shares Friday, extending a period of turmoil.
The sports apparel and footwear giant reported late Thursday its fiscal second-quarter earnings that beat analyst expectations, including revenue of $12.4 billion, up 1%, and net income of $792 million, down 32% from the year prior.
The results represented another step forward as Nike and its president and CEO Elliott Hill are continuing the company’s retooling, an often-painful process that has included several large rounds of staff reductions and multiple quarters of weak earnings.
“I’d say we’re in the middle innings of our comeback,” Hill said. “While we’re driving progress through our Win Now [initiative], we’re nowhere near our potential.”
Beneath the latest top-line financials, though, Nike said its revenue from its China business fell 17% to $1.42 billion as store traffic and inventory issues hit there. Additionally, the company warned of another revenue retreat in the current quarter, likely in a single-digit percentage. That’s in part, as Hill said, because “[U.S.] tariffs have also obviously added a significant headwind to overcome.”
Those elements are what investors have locked in, sending the company’s shares down more than 10% at the start of trading on Friday. With the latest decline, Nike stock has fallen nearly 20% for the year. If the Friday loss holds through the end of trading, it will be the biggest one-day loss for Nike since April, when U.S. President Donald Trump unveiled the first of a sweeping set of tariffs.
“Our progress will not be linear, as each brand, sport, and geography is recovering on a different timeline,” Hill said.
Complex Task
A big part of Nike’s challenge is that it doesn’t have just one pressing issue to resolve, but many, all at once. The company is simultaneously trying to refine and upgrade its product line while dealing with different sales patterns across various parts of the world, pursuing an enhanced relationship with its wholesale suppliers and retail outlets, and grappling with macroeconomic forces—many of which are entirely out of their control.
“We continue to believe Nike is making the right moves by cleaning up inventory, rebalancing the product portfolio by increasing newness and reducing the focus on classic franchises, and strengthening relationships with wholesale partners,” wrote Telsey Advisory Group in a research note. The firm maintained a “market perform” rating for Nike, but slightly lowered a 12-month outlook for the stock from $75 to $72 per share.
“There remains significant work to revitalize the entire product portfolio, and Nike still faces profit headwinds, tariffs, and lower digital sales,” the firm wrote.
