TLDR
- Nike shares tumbled nearly 9% during premarket hours following fiscal first quarter earnings.
- The company reported $11.21 billion in revenue, falling short of Wall Street’s $11.33 billion projection.
- Per-share earnings of $0.48 exceeded analyst expectations of $0.44.
- A restructuring initiative dubbed Pace will include workforce reductions.
- Management forecasts fiscal 2027 revenue will drop by a high single-digit percentage.
Shares of Nike plummeted approximately 9% during Friday’s premarket session. The selloff followed the athletic apparel maker’s fiscal first quarter earnings report, which revealed top-line results that disappointed investors even as bottom-line figures surpassed projections.
The sportswear giant generated $11.21 billion in sales during the quarter. This figure fell short of the $11.33 billion consensus estimate from analysts and represented a 4% year-over-year decrease.
On the profitability front, Nike delivered $0.48 per share, edging past the $0.44 consensus forecast despite slipping from the prior year’s $0.49. The company’s gross margin improved by 60 basis points to reach 42.8%, driven primarily by reduced warehousing and distribution expenses.
Performance challenges emerged across multiple segments. The Nike Direct division saw an 8% revenue contraction, while both Greater China and the EMEA region experienced sales declines.
Nike’s transformation strategy
Together with the quarterly results, Nike unveiled Pace, a comprehensive operating framework. This initiative centers on supply-chain optimization, establishing a new facility in India, and consolidating operations into three geographic territories.
The company projects that this restructuring effort will generate approximately $2.5 billion in aggregate cost reductions extending through fiscal 2031. The transformation will require roughly $1 billion in pretax restructuring expenses over the same timeframe, with approximately $300 million anticipated during fiscal 2027.
The reorganization will necessitate workforce reductions. CEO Elliott Hill acknowledged the difficult news in correspondence sent to staff members.
“This work will result in fewer roles across Nike, and I want to acknowledge that news like this creates uncertainty,” Hill wrote. Decisions on which roles are affected won’t begin until calendar year 2027.
Looking ahead
Nike’s forward guidance offered little optimism for stakeholders. Management projected that fiscal 2027 revenue will contract by a high single-digit percentage.
The company forecast adjusted earnings per share ranging from $1.15 to $1.35, which excludes roughly $0.15 in restructuring-related charges. Analysts at Stifel noted they’re “not ready to call a bottom yet” considering the stock trades at 28 times forward earnings based on the midpoint of that range.
CFRA analyst Zach Warring, who maintains a Buy rating on the shares, offered an alternative perspective. He characterized the results as “a quarter you’d expect from a new CEO three or four quarters in, but not two years in.”
Warring observed that both valuations and market expectations have been recalibrated, potentially positioning Nike to address underperforming markets, particularly Greater China and Europe.
Nike’s challenges extend beyond this single quarter. Back in late August, Dick’s Sporting Goods cautioned that aggressive promotional activity on Nike’s excess inventory was negatively impacting its own financial performance.
Additionally, soccer superstar Kylian Mbappé terminated his endorsement arrangement with Nike last month. He subsequently partnered with Swiss competitor On.
The company was also recently removed from the S&P 100 index after maintaining membership for almost twenty years. Short positions on Nike shares currently exceed 7% of available float.
Friday’s earnings disclosure marked the inaugural quarterly report under new CFO Dave Denton, who arrived at Nike following his tenure at Pfizer.
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