NIKE Stumbles: Earnings Miss Sends Stock Plunged 12.39% in After Hours

NIKE reported somewhat disappointing earnings for its fiscal 2024 fourth quarter and full year, falling short of analyst expectations and triggering a significant 12.39% drop in its stock price in after-hours trading. Let's delve into the numbers and understand why investors are hitting the brakes.

Fourth Quarter Shortfall:

• Overall Revenue: NIKE's total revenue for the quarter landed at $12.6 billion, reflecting a 2% decline compared to the same period last year. Even after adjusting for currency fluctuations, revenue remained flat, indicating a lack of growth. This is concerning considering analyst predictions of an increase.

• NIKE Brand Stumbles: The core NIKE brand, a crucial revenue driver, witnessed a slight decline in North America, a key market for the company. Revenue here dipped 1%, suggesting potential difficulty connecting with domestic customers.

• Digital Sales Slump: NIKE Direct, encompassing the company's digital sales and brick-and-mortar stores, took a significant hit with a revenue drop of 8%. This weakness in both online and physical retail channels raises concerns about their overall sales strategy.

• Converse Continues to Slide: The Converse brand's struggles continued, with revenue plummeting 18% in the quarter. This raises questions about NIKE's ability to revive the subsidiary and reverse its downward trend.

Limited Bright Spots:

There were a few positive aspects in the report. Wholesale sales, driven by faster shipping schedules, saw a 5% increase. Additionally, gross margins improved slightly due to strategic pricing actions and lower shipping costs. However, these gains weren't enough to offset the overall decline in sales.

Management Acknowledges Challenges:

NIKE executives openly acknowledged facing "near-term challenges" and are taking steps to "reposition NIKE to be more competitive." They also revised their fiscal 2025 outlook, implying an anticipation of continued difficulties.

Investor Jitters:

The combination of missed expectations, declining sales in key areas like North America and digital, coupled with a revised outlook, created a sense of unease among investors. This is reflected in the substantial after-hours stock price drop.

What to Watch Going Forward:

The coming quarters will be crucial for NIKE. Key questions remain: Can they reignite growth in North America? Will they revamp their digital strategy to improve online sales? Can they successfully turn around the struggling Converse brand? Investors will be closely monitoring these factors to gauge the company's future trajectory.

Analyst Take:

NIKE remains a powerful brand with a loyal customer base. However, this earnings report raises questions about their ability to maintain momentum. Investors should carefully consider these challenges and the company's response before making any investment decisions.