(Bloomberg) -- Nike Inc. withdrew its full-year guidance after sales missed estimates, underscoring the challenge that incoming Chief Executive Officer Elliott Hill will face when he takes the reins later this month.
During the company’s call with analysts, Chief Financial Officer Matt Friend said the move was due to the upcoming leadership transition. The company expects revenue to decline in a range of 8% to 10% in the second quarter — similar to the drop posted in the previous period.
“While there are some early wins, we have yet to turn the corner,” Friend said. Outgoing CEO John Donahoe wasn’t on the call.
The shares fell 6.3% at 5:36 p.m. in late New York trading, extending earlier declines. The stock has dropped 18% this year through Tuesday’s close, compared with a 20% gain for the S&P 500 Index.
Nike is resetting expectations before Hill takes charge of the world’s largest footwear company. It’s one of Nike’s roughest patches in decades, and investors are clamoring to hear his turnaround approach.
They may have to wait longer than expected, however: The company is postponing its investor day, which had been scheduled for November, to give Hill time to develop his strategy. He’ll be expected to address how Nike will rebuild its frayed relationships with spurned retailers while retaining staff who’d lost faith in the company’s trajectory. Crucially, he’ll also need to accelerate development of new products.
The company reported that revenue in its fiscal first quarter fell 10% to $11.59 billion, just short of the average analyst estimate. The declines were especially sharp in North America and the region including Europe, Africa and the Middle East, while the Converse brand also persisted as a problem area.
Hill does inherit some bright spots: Sales in Greater China outpaced expectations, and the 4% decline there was the smallest among the company’s regions. Gross margin also beat estimates, with the retailer citing lower costs for products, warehousing and logistics. It noted that price adjustments taken last year also helped with profitability. Earnings per share in the period, which ended Aug. 31, surpassed expectations.
Future Moves
The numbers likely won’t matter much to investors, who say the current quarter is a bit of a throwaway as they await the new CEO’s strategy.
“The idea here is that everyone understands that Nike stock now will be predicated on what Elliott does in the future, and that isn’t something that can be really addressed,” said Simeon Siegel, an analyst at BMO Capital Markets. “This is a picture of a reality we already know has been changed.”
Hill, a Nike veteran who started as an intern decades ago, is coming out of retirement to take the top job on Oct. 14. He replaces Donahoe, who became CEO in 2020 when sales were soaring, but oversaw Nike during one of the most tumultuous years in the company’s half-century history.
Nike’s board selected Donahoe, the former eBay Inc. and Bain & Co. boss, for the top role with the hopes he would use his e-commerce expertise to transform the company into a digital powerhouse. He halted or reduced the flow of sneakers to more than half of the company’s retail partners, in favor of Nike’s own stores, websites and apps.
Related: Nike CEO’s Playbook Turned Off Sneakerheads and Retailers
Under Donahoe, Nike hit its $50 billion revenue goal, boosted by rapid growth around its lifestyle sneakers, such as Dunks and Air Force 1s. But as demand for those products cooled last year, executives were left scrambling to find items to replace them in the face of growing competition from brands such as On, Hoka and Salomon, which quickly filled the shelf space in stores that Nike had vacated.
In December, Donahoe presented a plan to cut $2 billion in costs, including a 2% reduction of Nike’s workforce, which it rolled out in phases in the first half of the year. Then, in June, Nike had its worst day in the stock market since going public in 1980. Executives forecast at the time that sales would slide in the company’s current fiscal year. That ramped up investors’ pressure on Donahoe and his leadership team.
Slowing Development
Meanwhile, at Nike headquarters in Beaverton, Oregon, product development had slowed as the company dealt with pandemic crises and leaned on its existing lifestyle shoes. Executives have said they’re resetting the product pipeline with a three-year blitz that started ahead of the Olympic Games in Paris this year.
Nike spent aggressively around the Olympics in an effort to revive sales via bolder advertising for a global audience. The company said “demand creation” expenses rose 15% to $1.2 billion for the quarter.
When Hill takes over as CEO, investors will be looking for answers on how he plans to rebuild those relationships with spurned retailers, retain staff who’d lost faith in the previous regime, and speed up innovation to bring new products to market.
“Expectations are very low,” said David Swartz, senior equity analyst for Morningstar, ahead of the report.
(Adds details of new quarterly guidance and context starting from sixth paragraph.)
More stories like this are available on bloomberg.com
©2024 Bloomberg L.P.
Catch all the Business News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
MoreLess