Due to factors such as more cautious consumer behavior and weak online business trends, sports goods giant Nike has lowered its annual performance guidance.
On December 21, Eastern Time, Nike Group disclosed its financial performance for the second quarter of the 2024 fiscal year as of November 30, 2023. The revenue for the second quarter was 13.388 billion US dollars, a year-on-year increase of 1%. If the exchange rate remains unchanged, it will decrease by 1% year-on-year, slightly lower than market expectations (13.46 billion US dollars). The net profit for the second quarter was $1.578 billion, a year-on-year increase of 19%. Diluted earnings per share for the second quarter were $1.03, a year-on-year increase of 21%, higher than market expectations.
Nike Group's gross profit margin for the second quarter increased by 1.7 percentage points year-on-year to 44.6%, slightly lower than market expectations (44%). The financial report indicates that the increase in gross profit margin is mainly driven by strategic pricing measures and a decrease in sea freight rates, but partially offset by unfavorable changes in foreign exchange and higher product input costs.
Nike Q2 Financial Data
The financial report also pointed out that Nike Group is seeking opportunities to accumulate cost savings of up to $2 billion over the next three years. Potential areas of savings include simplifying product classification, increasing automation and technology utilization, streamlining organization, and utilizing scale to improve efficiency. Most of the saved funds will be used to drive future growth, accelerate innovation speed and scale, and improve long-term profitability.
According to foreign media reports, Nike's strong second quarter profit performance indicates that cost reduction measures have begun to be implemented. In terms of revenue, this is Nike's first consecutive quarterly revenue lower than expected since 2016. As of the close of December 21st local time, Nike's stock price was at $122.53, up 0.91%. The US stock market fell more than 11% after trading.
Cost saving plan accelerates layoffs, weak consumption drives downward adjustment of annual performance guidelines
Specifically, in terms of revenue, the Nike brand's revenue was $12.872 billion, a year-on-year increase of 1%, remaining unchanged on the basis of unchanged exchange rates. Converse's revenue was $519 million, a year-on-year decrease of 11% and a 13% decrease based on unchanged exchange rates. This was mainly due to a decrease in revenue in North America and Europe, partially offset by sales growth in Asia.
Among Nike brands, footwear revenue accounted for the highest proportion of nearly 70%, reaching $8.607 billion, a year-on-year increase of 1%, remaining unchanged on the basis of unchanged exchange rates. The clothing revenue was 3.774 billion US dollars, a year-on-year decrease of 1%, and a decrease of 2% on the basis of unchanged exchange rates. The equipment revenue was 479 million US dollars, a year-on-year increase of 17%, and an increase of 15% on the basis of unchanged exchange rates.
Nike Revenue Data
In terms of channels, Nike's self operated business revenue in the second quarter was 5.7 billion US dollars, a year-on-year increase of 6%, and an increase of 4% on the basis of unchanged exchange rates; Nike's digital business revenue increased by 4% year-on-year, with a 1% increase on the basis of unchanged exchange rates; Wholesale revenue was 7.1 billion US dollars, a year-on-year decrease of 2%, and a decrease of 3% on the basis of unchanged exchange rates.
In terms of inventory, Nike's inventory for the second quarter was $8 billion, with a market estimate of $86.4 lower than market expectations, a year-on-year decrease of 14%.
Matthew Friend, Executive Vice President and Chief Financial Officer of Nike, stated that Nike's second quarter performance was a turning point in driving profit growth. Looking ahead to the relatively weak revenue outlook in the second half of the year, Nike still focuses on improving gross profit margins and implementing strict cost management.
As part of its commitment to accumulate $2 billion in cost savings over the next three years, Nike also stated in its financial report that it is taking measures to streamline its organization and is expected to face pre tax restructuring costs of $400 million to $450 million, most of which will be recognized in the third quarter of fiscal year 2024, mainly related to employee severance pay.
In early December of this year, foreign media reported that Nike has been quietly laying off employees in a series of departments including recruitment, procurement, branding, projects, human resources, and innovation in the past few weeks.
Regarding the cost reduction plan announced this time, senior consumer analyst Poonam Goyal analyzed that it may bring higher efficiency and profits, but it may also affect recent performance. A 14% year-on-year decrease in inventory may continue to increase gross profit margin, but revenue may continue to change in the face of economic uncertainty.
It is worth noting that in addition to launching a cost reduction plan, Nike has also lowered its annual performance guidelines this time.
Nike executives predicted during a conference call after the financial report that Nike's annual revenue is expected to increase by about 1%, lower than the previously predicted median percentage growth. In addition, the current third quarter includes the second half of the holiday shopping season, but due to low single digit sales growth compared to last year, Nike expects slightly negative revenue growth, while sales in the fourth quarter will show low single digit growth.
In addition, executives also predicted during the conference call that the gross profit margin will continue to expand by 1.4 to 1.6 percentage points, excluding restructuring costs, and the company is expected to achieve its full year profit forecast.
Matthew Friend stated during a conference call that when providing performance guidance last quarter, he emphasized some risks in Nike's operating environment, including exchange rate factors, holiday consumption demand, and the impact of wholesale orders in the second half of the year. He looks forward to further exacerbating these risk impacts in the future.
Nike CEO and CFO also pointed out during a conference call that there are signs of consumers around the world being more cautious in their consumption behavior. Despite the increase in customer traffic in the store, Nike's promotional activities in its digital business are still at a high level, and Nike's e-commerce growth level is also relatively low.
Revenue in Greater China has increased for five consecutive quarters, and Nike reiterates its confidence in the Chinese market
This quarter, the popularity of large-scale sports events, marathons and other national sports continued to rise, and the overall sports consumption market showed a trend of recovery and improvement. Nike's Greater China region continued to lead key tracks including running and basketball both online and offline this quarter, while Nike continued to increase investment in the Chinese market.
Nike's revenue in Greater China has achieved continuous growth for five quarters, with Nike brand revenue reaching $1.863 billion, lower than market expectations ($1.97 billion), a year-on-year increase of 4%, and an 8% increase on the basis of unchanged exchange rates.
Nike Brand Revenue Data by Region
In terms of profit, the pre tax profit of Greater China in the second quarter of fiscal year 2024 increased by 1%, reaching 514 million US dollars; The pre tax profit for the first half of fiscal year 2024 decreased by 1% year-on-year, reaching 1.039 billion US dollars.
Nike brand's pre tax profit data by region
During the conference call, Nike CEO reiterated his confidence in the Chinese market, "We are very satisfied with our position and competitiveness in the Chinese market, which has not changed compared to 90 days ago."
Nike Group President and CEO Tang Ruoxiu said, "Our performance in the second quarter demonstrated how we can steadily develop in key areas of innovation and growth. This quarter has demonstrated the strong execution power of our team, focusing on innovative products, unique brand stories, and differentiated market experiences as the winning secret."
Specifically, the footwear revenue of Nike brand in Greater China was 1.361 billion US dollars, a year-on-year decrease of 1%, and an increase of 3% on the basis of unchanged exchange rates. The clothing revenue was 469 million US dollars, a year-on-year increase of 19%, and an increase of 24% on the basis of unchanged exchange rates. The equipment revenue was 33 million US dollars, a year-on-year increase of 32%, and an increase of 36% on the basis of unchanged exchange rates.
Pengpai News reporter learned that as consumers return to offline, Nike's offline sales in Greater China have achieved double-digit growth, driving Nike's sustained growth in the Chinese market. Nike is also accelerating the implementation of its "Connected Membership Solution". As of the end of this fiscal quarter, over 500 partner stores in over 130 cities have joined Nike's membership system. Compared to the same period last year, the average consumption per member has increased by over 30%.
In addition, at this year's CIIE, Nike announced that it will build a Nike Sports Research Laboratory at its Greater China headquarters in Shanghai in 2024, focusing on the unique needs and potential opportunities of Chinese consumers, and using sports technology and local insights to tailor innovative products and services for local consumers, further strengthening its connection with Chinese consumers.