Nike, a global leader in sportswear, faced a tumultuous day in the stock market as its shares plummeted significantly during early Friday trading, potentially wiping out around $21 billion in market value. The decline followed the company’s release of a cautious sales forecast that disappointed investors and analysts alike, highlighting ongoing challenges in its efforts to revive growth and profitability under CEO John Donahoe’s leadership.
In response to competitive pressures and evolving consumer preferences, Nike embarked on a strategic overhaul, launching a $2 billion cost-cutting plan aimed at bolstering profit margins and revitalizing its retail operations. Despite these efforts, the company reported a 2% decline in revenue for its fiscal fourth quarter, totaling $12.61 billion, falling short of the market’s expectation of $12.8 billion. The earnings per share, however, showed a positive trajectory with a 48% year-over-year increase to 99 cents, although gross margins were lower than anticipated due to aggressive promotional pricing strategies used to clear out older inventory.
Looking ahead, Nike’s outlook for the upcoming fiscal year projected a double-digit decrease in overall revenues, contrasting sharply with analysts’ forecasts of a 1% growth. This cautious guidance underscored Nike’s characterization of the year ahead as a “transition year,” marked by challenges in managing product cycles and navigating shifting consumer behaviors, particularly in key markets like Greater China and Europe.
The market reaction was swift and critical, with several Wall Street analysts downgrading their ratings on Nike and slashing price targets. Morgan Stanley’s Alex Straton downgraded the stock to ‘equal weight’ from ‘overweight’, expressing uncertainty about Nike’s ability to achieve profitability amid strategic shifts and macroeconomic uncertainties. TD Cowen’s John Kernan raised concerns about Nike’s reliance on mid-tier fashion trends and advocated for a strategic pivot away from its broad-based consumer approach.
Stifel’s Jim Duffy added to the skepticism, questioning the credibility of Nike’s current leadership and speculating about potential executive changes in light of persistent operational challenges. These sentiments were echoed by analysts like JPMorgan’s Matthew Boss and Truist Securities’ Joseph Civello, who also adjusted their ratings downward, reflecting a cautious stance on Nike’s near-term performance and strategic direction.
In pre-market trading, Nike’s shares were anticipated to open around 14.8% lower at approximately $80.20 per share, which would extend the stock’s year-to-date decline to about 26%. As a key component of the Dow Jones Industrial Average, Nike’s underperformance relative to broader market indices highlighted investor apprehensions about its competitive position and ability to deliver sustained growth in a fiercely competitive sportswear landscape.