Nike's growth has become even more difficult.
On June 27th local time, the company disclosed its annual and fourth quarter performance reports for the fiscal year 2024 as of May 31, 2024. According to the financial report, in the 2024 fiscal year, Nike's revenue, excluding exchange rate factors, was $51.4 billion, a year-on-year increase of 1%; The net profit attributable to the parent company was 5.7 billion US dollars, a year-on-year increase of 12%.
It should be noted that Nike's revenue growth has stagnated since the beginning of this year. In the fourth quarter ending in May, Nike's revenue was $2.6 billion, basically unchanged year-on-year; The net profit attributable to the parent company was $1.5 billion, a year-on-year increase of 45%.
More importantly, Nike has lowered its revenue expectations.
At the financial report conference call, the company's executives lowered their revenue guidance for the fiscal year 2025 to the number of units in decline. Among them, there was a high unit decline in the first half of the year, followed by a low unit decline in income, resulting in a full year growth.
Due to this expectation, Nike's stock price plummeted 19.98% to $75.36 per share on June 28th, marking the largest daily decline in history and evaporating its market value by approximately $28.41 billion.
On July 1st, Nike closed at $76.83 per share, up 1.94%.
618 market rescue?
Objectively speaking, Nike's main growth pressure comes from the United States.
According to the financial report, in the 2024 fiscal year, Nike's sales in North America amounted to $21.4 billion, a year-on-year decrease of 1%. In the fourth quarter, Nike North America's revenue was $5.3 billion, a year-on-year decrease of 1%.
"The decrease in customer traffic at factory stores highlights the growing pressure felt by value conscious consumers," explained Matthew Friend, Nike's CFO, during the earnings conference call.
Behind it is the pressure on American residents to consume. In May 2024, the Consumer Confidence Index of the University of Michigan in the United States dropped significantly from 77.2 in April to 69.1.
Taking Starbucks as an example, its financial report shows that in the second quarter of 2024 ending at the end of March, Starbucks had a revenue of $6.4 billion in the North American market, which was basically unchanged year-on-year. This is based on the continued expansion of the store. During the current period, Starbucks opened 134 new stores in its North American region, with 16600 stores in the US market.
In addition, in the EMEA (Europe, Middle East, Africa) market, Nike's revenue in the 2024 fiscal year was $13.6 billion, basically unchanged year-on-year. In the fourth quarter, the region's revenue was 3.3 billion US dollars, a year-on-year increase of 1%.
In the APLA (Asia Pacific and Latin America) market, Nike's revenue for the fiscal year 2024 was $6.7 billion, a year-on-year increase of 5%. In the fourth quarter, the region's revenue was $1.7 billion, a year-on-year increase of 4%.
Under pressure from major markets such as Europe and America, the Greater China region has become particularly important. In fact, the region has indeed become a growth locomotive. In the fiscal year 2024, Nike Greater China's revenue was $7.5 billion, an increase of 8% year-on-year. In the fourth quarter, the region's revenue was $1.9 billion, a year-on-year increase of 7%.
But this market also carries risks.
Matthew Flanders admitted that in the Greater China region, revenue increased by 7% in the fourth quarter, including several points contributed by Tmall's early start of the 618 shopping festival. If this timing advantage is not taken into account, performance will be lower than planned as traffic from all market channels continues to be weak. NIKE Direct has decreased by 2%, NIKE stores have decreased by 6%, and NIKE Digital has grown by 8%. Wholesale business increased by 15%. Earnings before interest and tax (EBIT) increased by 4% based on reported values, but the impact of exchange rates continues. We have experienced a significant shift in consumer traffic in our major markets, especially in the Greater China region, where physical store traffic has decreased by two digits compared to the previous year He said.
It cannot be ignored that the growth of China's consumer market is also not easy.
The survey results of urban depositors released by the People's Bank of China show that in the first quarter of 2024, the proportion of depositors who tend to invest more, consume more, and save more was 14.9%, 23.4%, and 61.8%, respectively. This indicates that the investment preference of urban depositors continues to decline compared to last year, and the savings tendency has increased.
In addition, the Consumer Confidence Index released by the National Bureau of Statistics dropped to 88.2 in April this year, and the income component of the Consumer Confidence Index dropped even further to 95 in April, a decrease of 1.2 and 1.9 respectively from March, both lower than the average levels of 2022 and 2023.
Star chart data also shows that the total online sales during the 618 period this year were 742.8 billion yuan, a year-on-year decline.
This makes it difficult for Nike to continue growing in China.
As a result, Nike lowered its revenue expectations. The weak online performance of sports lifestyle, the expected negative impact of exchange rate trends on income, the downward outlook for the Greater China region, and the tightening of supply and release schedules for some classic shoes are all factors contributing to this.
Expand channels
On this basis, Nike Greater China launched self rescue efforts.
In fact, this region is not without its highlights. Matthew Flanders mentioned that in the latest fiscal season, Nike's children's business in Greater China performed well, especially in running and basketball products. Men's and women's lifestyle products, retro running, and the latest localized innovative products have also received positive feedback. For example, in men's and women's running products, new series such as Structure, Vomero, and Invincible achieved double-digit sales growth.
Therefore, promoting new products has become Nike's main focus in China.
For example, in the field of running, the latest generation product, Nike Alphafly 3, was officially unveiled at the end of last year; In terms of basketball, the Nike G.T.Cut 3, equipped with ZoomX midsole foam, was the first basketball shoe to be launched in the Greater China region; For the female market, Nike launched the Nike Zenvy Void series in March this year. Nike also launched retro running shoe collections such as the Nike Vomero 5, Nike V2K Run, and Nike P-6000.
In addition, Nike's first sports science research laboratory established in Shanghai will be officially completed this year. Nike stated that the laboratory will focus on the unique needs and potential opportunities of Chinese consumers.
However, it should be noted that Nike may be lowering its barriers to domestic brands in terms of product advantages.
For example, a senior executive in charge of research and development from a leading domestic brand told 21st Century Business Herald that domestic companies have caught up with or even surpassed in the key midsole material of sports shoes. "In terms of foaming technology, one is traditional chemical foaming, and the other is supercritical foaming technology using thermoplastic elastomers, which have lighter and more elastic materials. These two technologies are very similar to fuel powered and new energy vehicle technologies in the automotive field. In the new track of supercritical foaming technology, Chinese brands have achieved overtaking in corners, and China's industrial chain matching and technological level are leading the world. Personally, I believe that Nike's more advantages lie in market and marketing." he said.
At the end of 2023, Matthew Nurse, Vice President of Nike Sports Research Lab, continuously emphasized the company's technological advantages to 21st Century Business Herald reporters. "Sports science is our competitive advantage, and experience is also crucial," he said.
Another major focus of Nike is on its channels.
On June 18th this year, Nike remained at the top of Tmall's outdoor sports brand and store sales list, and Nike Children also ranked first in Tmall's same category brand and store sales list. In addition, Nike finally launched on JD.com in May this year.
In the field of social e-commerce, Nike launched two official flagship stores of Tiktok in February this year.
Nike also mentioned that it has opened up inventory in both online and offline e-commerce channels to improve e-commerce delivery efficiency. Currently, over 230 stores in Greater China have participated in online order store shipments. On June 18th this year, Nike achieved an average delivery time of 37-46 hours.
Nike also stated that as of the end of this fiscal year, it has implemented "connected membership solutions" in approximately 1500 partner stores in nearly 300 cities in China.
Offline, in March of this year, JORDAN's new retail concept store WORLD OF FLIGHT was launched in Beijing. The store has a scale of four floors and is adjacent to flagship stores of brands such as LV and Dior. This is the fourth WOF store of the JORDAN brand globally, with the previous three located in Milan, Tokyo, and Seoul. It is also the brand's first self operated store in China. The store even offers light luxury products worth nearly 10000 yuan per order, and purchasing such products requires even more reservations.
All of the above reflect Nike's determination to invest heavily in the Chinese market, although market competition has indeed become more brutal.