After Nike Inc. NKE delivered its second-quarter earnings beating analyst estimates, its new CEO Elliott Hill rebuked his predecessor’s strategies and said that the athletic footwear and apparel brand was not maximizing its strengths.
What Happened: Nike reported second-quarter revenue of $12.35 billion, beating analyst estimates of $12.13 billion. The company reported second-quarter earnings of 78 cents per share, beating analyst estimates of 65 cents per share.
Hill started at the company as an intern in the 1980s and left Nike in 2020. John Donahoe, was his predecessor before he joined Nike again as its CEO in October.
Nike Direct revenues were $5 billion in the quarter, down 13% year-over-year. Nike Brand revenues totaled $12 billion, down 7%. According to the new CEO, Nike’s digital revenue impacted the health of its other marketplaces. He said, “We will build back an integrated marketplace, across Nike Direct and Wholesale.”
“We'll focus promotions during traditional retail moments, not at the consistent level we are today. And we will leverage Nike Value Stores to profitably move through any excess inventory,” said Hill.
CNBC’s Jim Cramer took to X, hinting at Nike CEO’s statements on the inventory levels.
“We've shifted investments away from creating demand for our brand to capturing demand through performance marketing for our Nike digital business. We will re-invest in our brands to create stories that inspire and emotionally connect with our consumers during important sport moments and critical product launches,” Hill added.
See Also: Nike Q2 Earnings: Revenue Beat, EPS Beat, Shares Jump — ‘Nike Being Nike Again’
Guidance: Regarding the near-term performance, Nike CFO Matthew Friend said that he sees “lower revenue, additional gross margin pressure, and higher demand creation expenses, with a greater headwind to the fourth quarter compared to the third quarter.”
Friend says he expects Nike’s revenue to be “down low double digits,” while gross margins are expected to contract between 300 to 350 basis points.
Why It Matters: Talking about straying way from its core principles, Hill said the following was one of his high-level observations.
“We lost our obsession with sport. Moving forward, we will lead with sport and put the athlete at the center of every decision.” He added that relying on a “handful of sportswear silhouettes is not who we are.”
The company’s total revenue was down 8% year-over-year. Sales in North America and Greater China were down about 8%, European sales fell 7%, while Asia Pacific and Latin American sales were down 3%.
As Nike’s Wholesale revenue fell 3% to $6.9 billion in the second quarter, Hill also spoke about regaining the trust of their wholesalers. “Some partners and channels feel we turned our back on them. And we stopped engaging consistently,” he said.
“We'll do more than just sell-in our products, we'll actively support mutually profitable sell-through. Simply put, we will win, when our partners win.”
Price Action: Nike stock closed Thursday 0.26% higher at $77.10 and declined by 0.54% in after-hours trading. It has declined 27.64% year-to-date.
About 33 analysts tracked by Benzinga have a consensus “Buy” rating on the stock with a price target of $94.10. The three most recent analyst ratings between Wells Fargo, Evercore ISI Group, and Deutsche Bank imply a 17.81% upside for Nike.
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