Before Nike released its first-quarter earnings, expectations were already low. Still, the company’s outlook disappointed investors and added to worries that its turnaround is taking longer than hoped.
Nike’s quarterly results were mixed. The company earned 44 cents per share on $11.21 billion in revenue, which met expectations but was lower than last year. Revenue fell 3.4%, not as much as some analysts predicted.
Nike brand revenue dropped 4% to $11 billion, with North America performing better than other regions, which struggled. Converse revenue fell 28% to $263 million, with declines in every region.
Nike’s full-year outlook disappointed investors. The company now expects earnings of $1.15 to $1.35 per share, much lower than the $1.67 analysts expected. Nike also predicts revenue will fall by a high single-digit percentage, which is worse than Wall Street had hoped. Shares dropped sharply in premarket trading Friday, adding to losses from Thursday.
The weak results seemed to confirm the concerns of bearish investors. According to S3 Partners, short interest in Nike reached a record high before the report. Over the past year, short interest as a share of the float rose from under 3% to over 7%.
Baird pointed out that providing specific guidance in the report was a step toward greater transparency and could help set more realistic expectations for Wall Street. However, the results show that turning around a company as large as Nike takes time because of long product development cycles.
Jefferies said the turnaround will take time, but improving profits and steady progress in North America suggest things are moving in the right direction, even though the recovery has been uneven. Still, this is little comfort for investors who have seen the stock fall sharply since its pandemic peak. Even before Thursday’s report, Nike shares were down a lot this year and had lost over half their value in the past 12 months, reaching their lowest point in more than ten years earlier this summer.
Analysts have become more cautious as Nike’s uneven recovery continues. Leadership changes and a smaller-than-expected boost from this year’s World Cup did not bring the improvement many hoped for. The stock also dropped sharply after its last earnings report in early July.
Overall demand for sneakers and athletic wear has slowed, but Nike has been affected more than most. Recent product launches have not created much buzz, and the brand does not have a cultural icon like Michael Jordan right now. Fashion trends have shifted toward dressier styles, and competition in athletic footwear is getting tougher. Only a few analysts are currently optimistic about the stock.
