Nike forecasts surprise drop in annual revenue on weak demand, shares fall

FILE PHOTO: A Nike store is shown at at outlet mall in San Clement, California, U.S., November 24, 2020. REUTERS/Mike Blake/File Photo

By Ananya Mariam Rajesh and Juveria Tabassum

(Reuters) -Nike on Thursday forecast a surprise drop in fiscal 2025 sales, as its direct-to-consumer strategy falters and the sportswear giant faces stiff competition from newer brands such as On and Hoka, pushing its shares down 12% after hours.

This has set Nike on path to lose nearly $15 billion in market value if the losses hold on Friday. The company's fourth-quarter revenue also missed estimates.

Nike's efforts to drive more sales through its direct-to-consumer channel have failed to reap rewards as customers turn more picky and migrate to more fashionable and innovative brands On and Deckers' Hoka.

According to GlobalData, Nike's U.S. market share in the sports footwear category was 34.97% in 2023, down from 35.37% in 2022 and 35.40 in 2021.

Nike executives said in a post-earnings call that annual revenue would also be impacted by weak demand in international markets, including China, where brick-and-mortar traffic declined in double digits from last year due to persistent macro uncertainty.

"I think they know where the problems are, but they're having trouble right now generating demand," Morningstar analyst David Swartz said.

Nike expects a mid-single digit percentage fall in annual revenue, compared with estimates of a 0.91% rise, and an about 10% fall in first-quarter revenue, compared with expectations of a 3.16% fall.

The company's executives reiterated that its investments to introduce new product lines and attract customers would take some time to reignite brand momentum.

"Nike is trying to sell a narrative that it's reinventing ... But the numbers they have given ... for 2025 really suggest a company that's in a bit of trouble and the things they're doing just are not going to deliver across next year," GlobalData analyst Neil Saunders said.

The company is betting on its Olympics push and added that its brand marketing campaign at the mega sporting event would be "hard to miss".

Nike said in April it would spend more on marketing and media at the upcoming Paris Olympics than in any previous games, in a bid to boost sales and regain market space from upstart brands.

The company's quarterly net revenue fell 1.71% to $12.61 billion, compared with analysts' average estimate of $12.84 billion, according to LSEG data.

The Air Jordan maker's strategy to double down on wholesale partnerships, however, helped boost revenue in the segment to 5% during the fourth, while growth in its direct-to-consumer business fell 8%.

Nike's $2 billion cost savings plan including layoffs, also helped the company's adjusted earnings of $1.01 top estimates of 83 cents.

CFO Matthew Friend said the "organizational reset (and) headcount dimension of the cost savings plan is behind us."

(Reporting by Juveria Tabassum and Ananya Mariam Rajesh in Bengaluru; Editing by Shinjini Ganguli)