Nike is making strategic adjustments to appeal to cost-conscious shoppers feeling the pinch from ongoing inflation, as the company navigates a backlog of products across its global markets. In its fiscal 2025 first-quarter report, the renowned footwear and apparel giant revealed a significant decline in revenue, dropping 10% to $11.6 billion.
Meanwhile, earnings saw a sharp 26% year-over-year drop, landing at $0.70 per share, reflecting headwinds impacting consumer spending. In North America, sales have plummeted by 11% on an annual basis, while the combined regions of Europe, the Middle East, and Africa experienced a 13% drop. The Asia Pacific and Latin America markets faced a modest downturn of 7%, and sales in Greater China dipped by 4%.
These figures highlight the challenges Nike is facing in an evolving retail landscape, where moderating sales and slowing customer foot traffic have contributed to escalating inventory levels in China, particularly amid a climate of already discounted merchandise. To regain momentum, Nike is shifting focus towards affordability by introducing new product lines priced below $100, aiming to capture the attention of budget-conscious consumers.
Chief Financial Officer Matthew Friend disclosed during the earnings call that this segment represents what Nike identifies as a 'core opportunity.’ The company is proactively working to expedite the launch of products within this price range. Additionally, Nike noted that sales in the North American running segment have experienced a boost, growing by double digits in the first quarter. “This represents several billion dollars' worth of revenue that we walked away from over the last couple of years, and our partners are very excited about the new product that's coming in this dimension,” Friend emphasized.
He expressed optimism regarding the potential for growth in the running category, stating that both running and core segments are where Nike sees the most promise for momentum driven by innovation and fresh offerings. Moreover, wholesale customers are responding positively to Nike's innovative strategies.
Oppenheimer analysts, including Brian Nagel, Andrew Chasanoff, and William Dossett, conveyed a sense of optimism surrounding these new lower-cost products in a recent note to clients. They remarked, “Senior leadership remains optimistic around the product pipeline in running footwear and apparel and announced plans for new running franchises priced below $100, allowing the brand to be more accessible to lower price-point customers.” While Nike has retracted its 2025 guidance coinciding with the announcement of its quarterly earnings just prior to the arrival of incoming Chief Executive Elliott Hill, who will officially take the helm on October 14, analysts from Morgan Stanley expressed that the bearish outlook is likely to gain traction due to the concerning tone reflected in the current quarterly performance and the uncertain prospects ahead. Morgan Stanley analysts pointed out that demand challenges, rising inventory levels, and gross margin pressures have started to weigh more heavily on the company than previously anticipated.
They noted, “While CEO transition is underway, (near-term) fundamentals remain challenged. The steady-state growth and profitability trajectory is highly uncertain, especially given a more competitive and fragmented landscape, and the company’s strategy is still not entirely clear. We believe the outstanding debate will linger, and the stock will prove range-bound.” As of now, Nike's stock price stands at $82.13, reflecting a change of -7.00 and a decline of 7.85%.
The company continues to navigate this complex retail environment while seeking to enhance its appeal among value-driven consumers..