Nike Inc. (NYSE:NKE) shares plunged as much as 19% on Friday following the company’s revised forecast, which now expects a greater revenue decline in 2025 than previously anticipated. The company announced on Thursday that it anticipates revenue to decrease by mid-single digits next year, including a 10% drop in the first quarter, contrary to earlier projections of overall sales growth for 2025.
Fourth Quarter Results and Future Projections
Nike’s updated guidance aligns with a continuing trend from its fiscal 2024 fourth quarter, reported after the market closed on Thursday. The company revealed that its fourth-quarter revenue fell by 2% year-over-year to $12.61 billion, missing Wall Street’s forecast of $12.86 billion. Despite this, Nike’s earnings per share of $0.99 surpassed analysts’ expectations of $0.66. However, direct-to-consumer sales declined 8% from the same quarter last year, totaling $5.1 billion.
“Fiscal 2025 will be a transition year for our business,” Nike CEO John Donahoe stated during the company’s earnings call.
Analyst Reactions and Stock Downgrade
Nike has struggled to reignite sales growth in what has been a challenging year for its stock. Morningstar equity analyst David Swartz described the sales numbers as “pretty weak,” highlighting them as the main concern from the earnings release.
Following the earnings call, Morgan Stanley analyst Alex Straton downgraded Nike from Overweight to Equalweight, reducing the price target from $114 to $79. “While undergoing strategic change, recent performance has been riddled with quarterly misses and guidance cuts,” Straton wrote in a note to clients, indicating that Nike’s long-term growth and profitability trajectory is now unclear and lower than previously assumed.
Investor Sentiment and Market Performance
Nike’s stock had already dropped more than 17% over the past year, a stark contrast to the S&P 500’s 26% gain, as investors grew increasingly concerned about the company’s slowing growth. Wedbush senior vice president of equity research, Tom Nikic, expressed skepticism about a quick recovery: “We doubt many investors will view this as a ‘buy the pullback’ event. We think NKE shares are headed for a stay in the proverbial penalty box until new product innovations start to manifest themselves and management regains investor trust.”
Competitive Landscape and Product Pipeline
Wall Street is closely monitoring Nike’s product pipeline as the Oregon-based company strives to fend off competition in its core athletic footwear market from rivals like Adidas, On Holding AG (NYSE:ONON), and Deckers Brands’ (NYSE:DECK) Hoka brand.
Nike executives remain confident in their plans to scale new products, expecting these efforts to positively impact the company’s financials by the end of the year. “We are planning for meaningful, sequential improvement in the second half versus the first half, and it starts with the confidence that we have around the new products that we’re bringing to market,” Nike CFO Matthew Friend said on the earnings call.
Moving Forward
Despite current challenges, Nike is focused on introducing innovative products to regain its market position. Analysts and investors will be watching closely to see if the company can deliver on its promises and achieve the anticipated turnaround.
Featured Image: DepositPhotos © Alakoo
