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Nike shares plunged on Friday after the world’s largest sporting goods maker by revenue warned its sales would fall this year, sending shares of retailers from JD Sports to Foot Locker reeling.
Nike reported weaker-than-expected quarterly sales late Thursday and lowered its forecast for next year. The company predicted that sales would decline by a mid-single-digit percentage due to slowing demand.
The drop in profits is a result of a lengthy restructuring that management initiated in December. At that time, the company also suffered a sharp drop in its share price after warning of weakening consumer demand.
News of falling demand in Nike stores and online sent shares falling 20 percent on Friday, triggering minor losses in retail stocks ranging from London-listed JD Sports to U.S. sporting goods groups Foot Locker and Under Armour.
The news undermined the confidence of Wall Street analysts, with one asking if the company’s best days were already over.
“Nike is too focused on mid-priced fashion-led trends that are being disrupted by higher-end brands like Hoka, On, Lululemon and other upstarts that appeal to consumers,” wrote John Kernan, managing director of TD Cowen, in a note to clients.
“The concept of being all things to all customers in this sector is effectively over and Nike management needs to reorient itself,” he added.
Nike Chief Financial Officer Matthew Friend told analysts on a conference call Thursday that “a comeback of this magnitude takes time” and that the company is taking “aggressive” steps to reorganize inventory at Nike-owned stores and in its digital channel after demand for lifestyle products slowed.
Nike’s direct-to-consumer sales fell 8 percent to $5.1 billion in the three months through May, while total sales fell 2 percent to $12.6 billion.
Nike has spent much of the year implementing a shift in strategy and a $2 billion cost-cutting plan outlined in December. The move is something of a reversal from an earlier reorganization that began before the Covid-19 pandemic and focused on direct-to-consumer and digital sales.
John Donahoe, CEO of Nike, told analysts that “the people dimension of the save-to-invest model [plan] is behind us. And now these teams are focused on driving innovation and implementation for the consumer.”
The 2024 turnaround plan followed a major, sweeping reorganization that Donahoe initiated in 2020. Nike was to move away from divisions organized around individual sports, such as running or soccer, and focus more on men’s, women’s and children’s models, while emphasizing higher-margin direct-to-consumer sales.
Those efforts appear to have backfired. Friend, Nike’s chief financial officer, said the company is now aiming to regain market share and expand “the entire market” rather than focusing on “one particular channel or another.”
Jim Duffy, CEO of Stifel, wrote that “the credibility of Nike management is seriously in question and a possible regime change at the executive level creates additional uncertainty.”
Last quarter, Nike also reported declines in Greater China, where footfall at brick-and-mortar stores fell “double-digits” year-on-year, as well as “uneven” trends in Europe, the Middle East and Africa.
The company expects sales to decline by 10 percent in the current quarter and by a mid-single-digit percentage in the 2025 fiscal year, which began in June.
Nike’s revenue fell slightly short of expectations last quarter as sales of the Converse brand fell 18 percent. However, the company’s earnings of 99 cents per share beat analysts’ forecasts by nearly 20 percent. Year-over-year, revenue fell 1.7 percent while net income rose 45 percent.