Nike's holiday season sales in China fell short of expectations, dropping over 6% after announcing a pessimistic guidance in after-hours trading

According to the financial news app Zhitong Finance, on March 22nd Beijing time, Nike announced its performance for the third quarter of the 2024 fiscal year. The financial report shows that Nike's Q3 revenue was $12.43 billion, a year-on-year increase of 0.3%, exceeding market expectations; net profit was $1.172 billion, a 5% decrease from the same quarter last year; diluted earnings per share were $0.77, compared to $0.79 in the same period last year.

After the financial report was released, Nike's stock price rose by about 5% in after-hours trading, but after issuing guidance for this quarter and the 2025 fiscal year, the stock price fell by as much as 7% at one point. As of the time of writing, it had fallen by 6.01% to $94.76.

Nike's sales in China during the holiday season continued to slow down, but thanks to better-than-expected growth and price changes in the North American market, the retailer's revenue and profit exceeded expectations.

Under non-GAAP, excluding restructuring costs, earnings per share were $0.98, surpassing market expectations. In December of last year, the company announced a broad restructuring plan to cut costs by approximately $2 billion over the next three years. Due to the warning of soft demand in the coming quarters, the company also lowered its sales guidance.

By brand, Nike brand revenue was $11.9 billion, growing 2% on a currency-neutral basis, as growth in North America, Greater China, and APLA was offset by a decline in EMEA. Converse brand revenue was $495 million, down 20% on a currency-neutral basis, mainly due to declines in North American and European businesses.

As consumers reduce spending on non-essential items such as clothing and shoes, Nike has been focusing on what it can control in recent months: cutting costs and improving efficiency to increase profits and protect its profit margins.

Nike's gross margin continued to improve this quarter. Driven by "strategic pricing actions and lower ocean and logistics costs," the retailer's gross margin increased by 150 basis points to 44.8%, but was partially offset by higher product input costs and restructuring expenses.

Inventory was $7.7 billion, down 13% from last year, reflecting a decrease in units.

Cash and cash equivalents and short-term investments totaled $10.6 billion, a decrease of approximately $200 million from last year, as cash generated from operations was offset by stock repurchases, cash dividends, capital expenditures, and bond repayments.

Performance Guidance

Excluding restructuring costs, the company reiterated its sales outlook for the 2024 fiscal year and stated that revenue is expected to grow by 1%, in line with the expected 1.1% growth.

Nike expects revenue and profit for the 2025 fiscal year to increase compared to the previous year, but did not disclose the growth rate. Analysts had previously expected revenue guidance to increase by 5.6%. The company is "cautiously planning" to lower revenue guidance for the first half of the 2025 fiscal year to low single digits, reflecting "soft global macroeconomic outlooks." It is expected that the full-year gross margin will increase by about 1.2 percentage points, lower than analysts' expectations of 1.4 to 1.6 percentage points.

Facing Intense Competition

Nike is still considered the market leader in the athletic footwear and apparel sector, but the category has become more crowded, requiring retailers to work harder to compete. Some analysts have indicated that their product line has lost focus and that the company has fallen behind in innovation, ceding market share to newcomers like Hoka and On Running, as well as traditional brands like Brooks Running and New Balance.

Senior analyst Jessica Ramirez stated that compared to previous positive ratings, the company currently holds a neutral outlook on Nike's long-term prospects, as the brand's development direction is currently unclear.

She noted that Nike has removed many products from its lineup, indicating that it is preparing to introduce new styles. However, it is currently unclear what these changes will entail.

Ramirez said, "They have mentioned that [these changes] will take some time," "Knowing that they don't have a reliable plan as far as we know is a bit concerning."