Nike's second-quarter revenue reached $124 million, a year-on-year increase of 1%, with inventory improvement and a recovery in the North American market | Earnings Report Insights

Nike Inc. demonstrated a dual characteristic of robust revenue growth and significant inventory improvement in its latest financial report, indicating that its operational efficiency is on the rise, although profits are still under short-term pressure from transformation investments. Despite positive recovery signals from the North American domestic market and the running category, the ongoing adjustments in the Greater China region mean that a full recovery for this sportswear giant will take time.

According to the financial report released on December 18, for the second fiscal quarter ending November 30, Nike recorded net sales of $12.43 billion, a year-on-year increase of 1%, outperforming previous Wall Street analyst expectations. Additionally, the company's inventory management showed significant effectiveness, with inventory value decreasing by 3% year-on-year to $7.7 billion, indicating a smooth process in clearing old stock, which reserves space for subsequent new product launches and improvements in profit quality.

Here are the key data from the financial report:

• Net sales: $12.43 billion (+1%)
• Net profit: $792 million (-32%)
• Diluted earnings per share: $0.53
• Inventory: Decreased to $7.7 billion (-3%)
• Greater China: Revenue of $1.423 billion
• Running business: Year-on-year growth of over 20%

However, to rejuvenate brand vitality in a fiercely competitive environment, Nike has increased its investment, resulting in a net profit of $792 million for the quarter, with earnings per share of $0.53, putting pressure on profits. According to analysis by Barron's, the core reason for the profit decline is the significant contraction in gross margin. The gross margin for the quarter decreased by 3 percentage points, primarily affected by rising tariffs in North America, markdown promotions due to clearing outdated inventory, and a decline in direct-to-consumer (DTC) sales. Nike's DTC business typically has a higher profit margin than wholesale, but this segment declined by 8% in the second fiscal quarter. Additionally, to stimulate demand, Nike's marketing expenses increased by 13% year-on-year, further raising costs.

Furthermore, the company expects revenue for the current quarter (third fiscal quarter) to decline in the low single digits, while analysts had previously forecasted a growth of 1.3%. Due to this pessimistic guidance, Nike's stock price fell by over 10% in after-hours trading on Thursday in New York.

CEO Elliott Hill admitted that the current transformation is at a "mid-stage," and the recovery path will be "non-linear," especially given the need for targeted improvements in the Greater China region and the Converse brand, leading management to provide a more cautious performance guidance for the third fiscal quarter.

In the face of a complex external environment, Nike is rebalancing the ratio of direct-to-consumer (DTC) to wholesale business. Although the company sees "what victory should look like" in core markets, given the complexity of the transformation, Nike expects low single-digit adjustments in revenue for the third fiscal quarter, reflecting management's strategic determination and patience in driving long-term change.

Short-term Profit Pressure and Inventory Optimization

The financial report data shows that Nike has maintained resilience in revenue, but profit performance has been affected by adjustments in gross margin and increased marketing investments. To cope with the complex market environment and optimize inventory structure, Nike has maintained necessary promotional efforts while actively increasing marketing expenses by 13% Management pointed out that although the increase in marketing expenses has squeezed profit margins in the short term, it is seen as a necessary investment to help the company get back on the growth track. Meanwhile, the reduction in inventory levels to $7.7 billion has validated the company's progress in improving operational efficiency, laying the foundation for Nike to optimize its profit structure in the coming quarters.

Regional Market Performance Divergence

In terms of global market performance, Nike has shown a clear regional divergence. The North American market, as the company's home base, has become a highlight this quarter, benefiting from the strong return of running products and the launch of new products, with the region's revenue showing positive signs of recovery. In the Europe, Middle East, and Africa region, Nike continued to maintain stability, recording a 3% growth.

In contrast, the Greater China region and the Converse brand are still in an adjustment period. The financial report shows that the revenue for the Greater China region in the quarter was $1.423 billion. Affected by a softening macro consumption environment and intensified market competition, sales in this region and for the Converse brand have fluctuated. Management has clearly stated that specific improvement plans will be developed for the Greater China region to address the current challenges.

Transformation Entering the "Midfield" Stage

Faced with mixed performance, Nike's management is trying to convey to investors that its recovery plan is steadily progressing. Elliott Hill emphasized during the earnings call that although there is still room to unleash the company's full potential, decisive actions are being taken to accelerate improvements in lagging areas.

"The positive momentum we see in North America and the running category shows what victory should look like," Elliott Hill stated. He also pointed out that the company is moving in the right direction, but transformation is not an overnight process. Based on the control of the transformation pace, the company has provided a relatively conservative outlook for the third fiscal quarter, expecting low single-digit revenue adjustments, reflecting management's cautious and pragmatic attitude in the current market environment