ii view: Nike sprints to three-month high on recovery prospects

Fourth-quarter results to 31 May

• Revenue down 12% year-over-year to $11.1 billion
• Adjusted earnings down 86% to $0.14 per share
• Share buybacks of $202 million

Guidance:

• Expects first-quarter revenues to fall by a mid-single digit percentage

Chief executive Elliott Hill said:

"While our financial results are in-line with our expectations, they are not where we want them to be. Moving forward, we expect our business to improve as a result of the progress we're making through our Win Now actions.”

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ii round-up:

Nike Inc Class B (NYSE:NKE) predicted a potential recovery in sales and profit as the sporting goods maker continued it transformation under relatively new chief executive Elliott Hill.

Fourth-quarter sales to late May fell 12% to $11.1 billion, reflected in an 86% fall in adjusted earnings per share year-over-year to $0.14. Nike continues to refocus away from a lifestyle emphasis toward innovation and products for athletes. A rebalancing back to selling goods via its wholesale avenue and other retailers potentially includes a return to trading on Amazon.com Inc (NASDAQ:AMZN). 

Shares in the Dow Jones company soared around 10% in post results trading overnight having come into this latest news down by around a third over the last year. That compares to a near 11% gain for the Dow Jones index. Retailer and Nike customer JD Sports Fashion (LSE:JD.) is down by just over third during that time, but up 7% in reaction to the American firm's results. 

Nike forecast sales for the current first quarter to late August to be down by a single digit percentage, with earnings of up to $0.32 per share, just under Wall Street forecasts of $0.35 per share. 

The company also estimated costs for US trade tariffs for the financial year ahead of around $1 billion, before product price increase and changes in its overseas supply chain. Nike hopes to fully mitigate tariff costs over time including moving some manufacturing operations away from China.     

Sales in China fell the most during the quarter, down 21% from a year ago. Sales in other regions and including its home North American market all fell around 10%.

Revenues for the year to late May retreated 10% to $46.3 billion. Nike offered no guidance for the 2026 financial year. 

Current CEO Elliott Hill started with Nike in the 1980’s, leaving the company in 2020, only to subsequently rejoin in 2024.  

ii view:

Founded in 1964, footwear continues to generate its biggest slug of revenues at 66% over this latest financial year, followed by clothes at 28% and equipment the balance of 5%. Wholesale accounted for 58% of sales. Direct sales taking in its own stores and online sales made up the balance of 42%. Geographically, North American made most sales at 44% of sales. That was followed by Europe, the Middle East and Africa at 27%, China 15%, and Asia and Latin America the balance of 14%.    

For investors, an arguable lack of sports product innovation and a reliance on established brands such as Jordans continues to hinder sales. Promotional activity and a reduction in stock explain a quarterly gross profit margin of 40.3%, down from 44.7% a year ago. High interest rates are likely affecting consumer spending, while competition from rivals like adidas AG (XETRA:ADS) is fierce.

To the upside, a revamp of the company under CEO Elliott Hill and his ‘Win Now’ programme are being pushed. Selling and administrative expenses were cut by 3% year-over-year to $16.1 billion. Hopes of further interest rate cuts persist, while a focus on shareholder returns includes an ongoing $12 billion share buyback programme and a forecast dividend yield of around 2.5%. 

In all, the strength of the Nike brand and a revamped strategy offer longer-term hope. That said, more cautious investors may demand more evidence of a recovery before taking an interest. 

Positives: 

• Product and geographical diversity
• Ongoing shareholder returns

Negatives:

• Uncertain economic outlook
• Subject to currency moves

The average rating of stock market analysts:

Strong hold