The actions of Nike Inc. sank after the full-year outlook for the sneaker company sports did not meet expectationsstoking investor concerns about declining demand and competition from upstarts On and Hoka, as well as rival Adidas AG.
The largest sportswear company in the world foresees a decrease in the income of a digit in the current fiscal year, which started this month. Analysts expected growth from around 2% this year, according to estimates compiled by Bloomberg.
Shares fell as much as 18% On Friday morning, the biggest drop in Nike since 2001. By 9:35 a.m., the crash had wiped out nearly $23 billion in market value. The shares had already fallen 17% in the last 12 months.
On, the Swiss sports brand in which Federer invested
Other sports retailers such as JD Sports Fashion Plc and Puma were dragged lower. Adidas rose early Friday in Frankfurt, but the stock later erased the gain.
After years of dominance, Nike is struggling to produce hot-selling footwear to replace top sellers such as the Air Force 1 and Dunk sneakers. Worsening results are adding to the pressure on Chief Executive John Donahoe. He has resorted to layoffs and other downsizing measures after an initiative to prioritize Nike’s own sales channels failed to produce promised levels of profit and growth.
In recent years, Nike has also reduced its reliance on retail partners, which in turn have begun to boost rival brands. The surge in competition from newer brands such as On Holding AG and Deckers Outdoor Corp.’s Hoka prompted Nike to pledge to prioritize sports, new products and wholesale partners.
Demand for Hoka sneakers is growing
The trajectory contrasts with that of Adidas, whose new CEO, Bjorn Gulden, has re-engaged with retail partners and accelerated the introduction of new products, such as the retro Samba sneaker, which has become a hit and fueled a new era of growth. He has also sharpened the company’s focus on athletic performance.
Nike’s fourth-quarter revenue fell 1.7% to $12.6 billion, missing analysts’ average estimates. The Converse subsidiary, known for its Chuck Taylor sneakers, was the furthest behind, as its revenue fell 18% due to poor sales in both North America and Western Europe.
Donahoe took over as CEO of Nike in January 2020, after many years leading technology companies such as ServiceNow Inc. and eBay Inc. Before that, he had spent nearly two decades at management consultancy Bain & Company Inc, where In 1999 he became CEO.
Sales of Nike’s lifestyle sneakers fell for the first time since the start of the pandemic.
Some analysts have criticized Donahoe’s leadership approach, with Sam Poser of Williams Trading recently arguing that Nike’s current top executives lack the “instinct and experience that the previous team had.”
That has left Nike in a “push model” situation, Poser said, where a company has to try to convince consumers to buy its products, rather than the opposite scenario, where people fight to get their hands on a company’s shoes and apparel.
That’s a stark difference from what the brand was experiencing for much of the last decade, during which it has basically doubled revenue from $25 billion in 2013 to more than $50 billion today. Although annual sales fell during the onset of the Covid pandemic in 2020, growth has otherwise been notable until recent quarters.
Now, company leaders are urging patience as the company looks to accelerate the launch of new franchises in the fitness and lifestyle categories in the second half of this fiscal year and then bring in more new products over the next two years.
“A recovery of this magnitude takes time,” said Chief Financial Officer Matt Friend during the company’s meeting with analysts. But he warned that the change in product range will erode sales in the short term.
Nike urges patience as it launches new franchises in fitness and lifestyle categories
Nike executives blamed the slowdown in part on lifestyle brands, including Air Force 1 and Nike Dunks. Sales in this category fell for the first time since the start of the pandemic, when demand for casual clothing took off.
According to Jefferies analyst James Grzinic, these problems could lead to double-digit downgrades in analysts’ earnings expectations for the company this year and next. Moreover, the era in which European shoe companies’ stocks followed in the footsteps of Nike is crumbling.
Adidas is now the “sports brand of choice for global investors” as Nike and Lululemon Athletica Inc. lose momentum, Grzinic said in a note.
The weakness of Nike’s own sales channels is also a “cause for concern, as the sportswear giant could be alienating its main buyers due to a lack of novelty,” said Poonam Goyal, an analyst at Bloomberg Intelligence.
Source: Infobae
