The rapid rise of sports sub category brands is reshaping the landscape of sports brands. The old comprehensive sports brand Nike has fallen into the challenge of stagnant performance growth.
On June 27th, Nike released its financial results for the fourth quarter and full year of the 2024 fiscal year. The globally renowned sports brand lowered its annual performance guidelines and expects a significant 10% decrease in sales for this quarter. Nike's latest financial report shows that it achieved a revenue of $12.606 billion in the fourth quarter, lower than market expectations. Meanwhile, it is expected that revenue will decrease by a single digit percentage in the fiscal year 2025.
The performance report shows that Nike's annual revenue for the fiscal year 2024 was $51.4 billion, a slight increase of 0.3% year-on-year. Compared to last year's 16% growth rate, Nike's revenue growth rate in the 2024 fiscal year has significantly declined.
Nike CFO Matthew Frend stated that the company has lowered its performance expectations due to issues such as slowing online sales, reduced franchise plans for classic footwear, increased macro uncertainty in Greater China, and imbalanced consumer trends across Nike markets. The company also expects that as the company reduces its innovation scale and franchise operations, the sales speed of wholesalers will also slow down.
Nike's performance growth has stagnated and expectations for the future have declined, causing a sharp drop in its stock price. On the day of its annual report release, Nike's stock price plummeted by 19.98% to close at $75.36, marking the largest daily decline since 2001, with a market value evaporating approximately $28.41 billion.
Major investment banks have lowered Nike's target price, while UBS has lowered Nike's target price from $125 to $78. The bank's research report pointed out that Nike's fundamental trend is "much worse than we realize, and its business needs to undergo significant adjustments." The Morgan Stanley research report pointed out that "although Nike is undergoing strategic changes, its recent performance has been plagued by poor quarterly performance and reduced performance guidance."
Greater China is one of the few markets where Nike's performance meets expectations. According to the financial report, Nike's revenue for the fiscal year 2024 in Greater China was $7.5 billion, an increase of 8% year-on-year on the basis of unchanged exchange rates, achieving seven consecutive quarters of positive growth. However, in the Chinese market, the challenges faced by Nike are gradually emerging, and Nike is also aware of this trend internally.
Nike CFO Matthew Frend stated in a conference call with analysts that the outlook for the Chinese market is "relatively weak" and stated that if it weren't for Tmall's early start of the 618 shopping holiday in the region, Nike's sales in China would not have met its internal expectations. "The Chinese market still attaches great importance to promotional activities, and we will continue to carefully manage Nike and its partners' inventory."
Cheng Weixiong, an analyst in the clothing industry and founder of Shanghai Liangqi Brand Management Co., Ltd., told China Net Finance reporters that the Chinese sports market has also shifted from being comprehensive to being segmented and diversified, which has had a certain impact on Nike. Local sports brands and segmented sports brands represented by Lululemon have brought considerable impact to Nike. In addition, the rise of outdoor sports brands has greatly diverted Nike's market.
Cheng Weixiong pointed out that Nike used to rely mainly on franchise chain operations, but in response to changes in omnichannel marketing in the Chinese market, Nike did not follow up in a timely manner, and there is a lot of room for improvement. "The consumption classification in the Chinese market is particularly evident, and new middle-income groups have a demand for mid to high end brands, including the rise of sports sub brands, which is also a challenge for comprehensive brands like Nike across all categories."
As performance expectations were lowered, Nike began to focus on cost reduction. Last December, Nike announced a broad restructuring plan aimed at reducing costs by approximately $2 billion over the next three years. Subsequently, Nike announced that it would lay off 2%, or more than 1500 employees, in order to invest in growth areas such as running, women's clothing, and the Jordan brand.