Nike’s sales remained down in its latest quarter, as ongoing efforts part of the company’s turnaround strategy have yet to translate into positive growth.
The company’s revenues for the fourth quarter, which ended on May 31, stood at $11 billion, down 1 per cent on a reported basis and 4 per cent on a currency-neutral basis. This marked a deterioration compared to the third quarter, when sales were flat on a reported basis and down 3 per cent in constant currency.
Gross margin increased 890 basis points to 49.2 percent, and net income soared 407 per cent to $1.1 billion, but primarily due to the benefit related to the expected recovery of the IEEPA tariffs.
CEO Elliott Hill said the fourth-quarter results were in line with expectations and demonstrated discipline in an increasingly challenging operating environment.
“We are improving the health of our business, managing our product portfolio and investing in marketplace elevation, while adjusting our operating costs for greater efficiency over time,” he added.
For the full year, revenues were flat at $46.4 billion (down 2 per cent in constant currency), and net income fell 3 per cent to $3.1 billion.
Actions have been ‘insufficient’
According to GlobalData MD Neil Saunders, Nike’s turnaround is taking much longer than anticipated, as problems are more deep-seated than previously acknowledged.
“There is no doubt that Nike has been trying to aim higher and run faster. Despite these efforts, it has still ended its fiscal year with a whimper rather than going out with a bang,” Saunders said.
“We also believe that the actions that have been taken to date are only delivering in a piecemeal way which, for a company of Nike’s size and complexity, is insufficient to give lift to the overall numbers,” he added.
Revenues for the Nike brand were $10.7 billion during the fourth quarter, flat on a reported basis and down 3 percent on a currency-neutral basis. The biggest geographical problem remains China, where revenue declined 12 per cent.
“As important as this market is for Nike, there is no simple fix. We can see in our own data that Nike has lost brand heat. But it’s not just that. Competition is tougher. The channel strategy remains poor. And localization isn’t good enough.
“Nike has also done itself no favors in China with over-exposure and some discounting to try and stimulate demand. This may have driven some small short-term gains, but it has commoditized and damaged the brand in the longer term,” Saunders commented.
The numbers in North America were better with a reasonable 3 per cent growth. Saunders attributed this to reinvigorated relations with wholesale partners and Nike showing up better across several channels.
“In some ways, this provides a glimmer of hope that the strategy being deployed is starting to work – even if it has not yet spread globally,” he said.
Converse had another terrible quarter with revenue down 32 per cent. According to the analyst, the question remains whether Nike has the bandwidth and will to fix the brand or has an exit strategy to save it from becoming a drain on resources.
“Overall, today’s numbers do nothing to signal accelerated momentum at Nike. And the cautious guidance just adds to the sense that full recovery remains elusive and a long way off,” Saunders said.
The company expects revenue to decline in the low-to-mid single digits for FY27.
