Nike reported earnings after the closing bell on November 1 ’24, and despite the big EPS beat and better gross margins, the stock fell 10% as investors realized that the turnaround is in it’s infancy and there’s a lot of work to be done.
Here’s the bad news:
1.) EPS and revenue estimates were cut sharply after Nike withdrew guidance for fiscal ’25 (ends May ’25);
2.) 8 quarters ago, the sell-side was expecting Nike to grow 21% in fiscal ’25, but after Tuesday night’s call, consensus EPS estimates are looking for a decline of 28% in EPS this fiscal ‘year ’25;
3.) Revenue estimate revision now expect a full-year 7% decline in Nike revenue for May ’25;
4.) The 120 bp y-o-y increase in Nike’s gross margin isn’t expected to continue per the Jefferies analyst;
5.) On the conference call, management noted worse-than-expected declines in Nike Direct and Nike Digital;
What’s the good news ?
1.) Despite the seeming lack of visibility Nike is still innovating and saw growth in “multiple sports dimensions” i.e. men’s fitness, men’s global football, and men’s and women’s running footwear. Men’s and women’s running footwear delivered positive growth, a “meaningful improvement” versus the fiscal Q4 ’24 (May ’24) quarter.
2.) A note out Of Jeffries said that Nike has witnessed a positive reception on it’s Spring running, (from whole sale partners), although that growth has offset other weakness since the Spring ’25 order book “came in roughly flat” (per the Jefferies analyst).
3) SG&A expenses have declined 7% and 9% y-o-y in the last two quarters although as a percentage of revenue at 24%’ish SG&A looks to be a little high relative to its 21% – 22% range during normal periods.
With the $8 drop in Nike shares, Nike is trading back under 2x revenue, which is much cheaper than where the shares were trading in late ’21 when the stock was trading up at $175 – $180.
Summary / conclusion: As readers and investors would probably expect, John Donahoe wasn’t on the conference call Tuesday night, and Matt Friend, the CFO lead the call for the Nike management team. This blog’s Nike earnings preview captured all the salient points. With the China rally last week, that could eventually be a positive for Nike in terms of Chinese consumer spending.
I hate to bore readers and pound the analyst drum, but I hope Matt Friend, Nike CFO, can find his way to release a statement of cash-flow with quarter earnings. Most major companies today are reporting their statement of cash-flow with the quarterly earnings release, rather than having to wait for the 10-Q to come out.
The pulling of the ’25 revenue and EPS guidance by Matt Friend was probably a nod to Elliott Hill, the new CEO and returning Nike employee, as it gives Elliott a clean slate to set his own guidance and keep expectations reasonable.
1.) Investors would like to see EPS and revenue revisions stop falling or stabilize and then start to climb again;
2.) Personally, i think we’ll need at least another 6 months to see if Nike can generate some excitement (and revenue growth) around Spring ’25;
Turnarounds are tough. Many do not succeed, but I think Nike has the right guy for the job. This blog has been following Nike since the mid-1990’s and the “brown shoe craze” that torpedoed Nike’s stock in 1997, resulted in the stock not seeing an all-time high until 2002, 2003. Now 2001 and 2002 were tough markets for growth stocks so the stock treaded water until the SP 500 saw a strong rally in 2003 (started with the launch of the 2nd Gulf War in March ’03), but once Nike broke out it kept going.
Technically, a trade below $70, which would be below the recent July – August ’24 lows would not be a positive.
None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results. Investing can and does involve the loss of principal even for short periods of time.
Thanks for reading.