Nike's sales in the previous quarter fell short of expectations and withdrew its full year performance guidance for the new fiscal year.
On October 1st local time, Nike (NYSE: NIKE) released its financial results for the first quarter of fiscal year 2025, ending on August 31, 2024. The revenue for the quarter was 11.6 billion US dollars, which fell short of market expectations and decreased by 10% year-on-year; Achieve a net profit of 1.051 billion US dollars, a year-on-year decrease of 28%; The gross profit margin increased by 1.2 percentage points year-on-year to 45.4%, exceeding market expectations, mainly due to the reduction of NIKE brand product costs, lower warehousing and logistics costs, and benefits from last year's strategic pricing measures.
Financial data for this quarter
It is worth noting that the new CEO of Nike is about to take office. On September 19th, Nike announced that the company's board of directors has appointed Elliott Hill as President and CEO, effective October 14, 2024. As a retired veteran who has worked at Nike for 32 years, Hill has led Nike's global team, brand, and business to create excellent performance.
During the conference call, Matthew Friend, Executive Vice President and Chief Financial Officer of Nike Group, stated that the board believes Hill is the appropriate leader to drive Nike's next phase of growth. To welcome the appointment of the new CEO, establish new connections with the company team and employees, assess current and 2026 fiscal year strategic positioning and business trends more flexibly, and develop plans, the company will withdraw its full year performance expectations for fiscal year 2025, provide quarterly guidance for the remaining time of this fiscal year, and postpone investor day activities.
At the same time, Flender also mentioned during the conference call that he would like to thank former CEO John Donahoe for his contributions to Nike, which helped the company overcome the pandemic and major supply chain disruptions, accelerated the company's digital transformation, and launched new Nike community investments globally.
Expected revenue to decline by at least 8% in the second quarter, new CEO returning to Nike faces challenges
In this quarter, Nike has been actively adjusting its product portfolio and reigniting brand momentum through sports. But the scale recovery takes time, and the company has not yet reversed the situation. Specifically, Flender pointed out, "The company's unit sales for the quarter were lower than expected, partially offsetting the higher average selling price. The decline in traffic from Nike's direct sales was greater than expected. We found that traffic from Nike's online channels and partner stores in Greater China was particularly weak
Overall, Fran pointed out that the performance of the first quarter was basically in line with expectations. From the strong momentum in key sports fields to the accelerated pace of new products and innovation, the company has seen early victories. With Hill returning to lead Nike's next phase of growth, the company team is full of vitality.
Looking specifically at business data, both NIKE and Converse brands faced challenges in their performance this quarter. The revenue of NIKE brand was 11.1 billion US dollars, a year-on-year decrease of 10%; Converse's revenue was $501 million, a year-on-year decrease of 15%. The financial report indicates that both brands have experienced a decline in revenue in all regions.
During the conference call, Flender stated that Nike saw growth in multiple sports dimensions during the quarter, mainly driven by men's fitness, soccer, and men's and women's running shoes, with clear signs of accelerating innovation. In the coming quarters, it is expected that the proportion of innovation and new products to the total footwear business will continue to grow.
In terms of channels, NIKE's direct sales revenue was $4.7 billion, a year-on-year decrease of 13%, mainly due to a 20% decline in NIKE brand online revenue, but partially offset by a 1% increase in NIKE's own store revenue. Wholesale revenue was 6.4 billion US dollars, a year-on-year decrease of 8%.
In the fourth quarter of the 2024 fiscal year, Nike executives pointed out that due to weak online sales and a decline in lifestyle business for the first time since the outbreak of the pandemic, classic series such as Air Force1, AirJordan1, and Dunk, which have a high proportion of online sales, performed poorly. However, in this quarter, Nike began actively adjusting its product investment portfolio and continued to reduce the proportion of classic footwear businesses such as AirForce1, Dunk, and AirJordan1.
Frand stated that the combined online sales of AirForce1, Dunk, and AirJordan1 decreased by nearly 50% in the quarter, with the Jordan brand alone experiencing a double-digit decline this quarter. At the same time, he saw a much better trend in wholesale sales, stating, "We are actively rebalancing product allocation to the channels with the highest traffic to maximize the health of our franchise rights and achieve full price... As expected, as we tighten market supply, the revenue decline of these franchises in the first quarter may exceed that of our overall business, and we expect this trend to continue to affect our reported revenue in the coming quarters." Frand also stated in a conference call that he will continue to work hard to promote the improvement of both direct and wholesale dimensions. Profitability. Nike is investing in the DTC business model (directly facing consumers), such as adding a full price product portfolio, to continue to see opportunities to improve profitability.
Previously, due to issues such as slowing online sales, reduced franchise plans for classic footwear, increased macro uncertainty in the Greater China region, and uneven consumer trends in various markets, Nike lowered its expectations for fiscal year 2025 when announcing its fourth quarter results for fiscal year 2024 at the end of June. During the conference call, Nike stated that it expects a revenue decline of 8% to 10% in the second quarter, and with increased promotional efforts, it expects a gross profit margin decline of approximately 1.5 percentage points.
Looking ahead, Flender pointed out during the conference call that considering the trend of Nike's online retail in the entire market and the traffic trend of final orders in spring, Nike's revenue expectations have slowed down since the beginning of this year. The "franchise management action" will continue throughout the year, and its impact is expected to be similar to the first quarter. The feedback from partners on future product lines is very positive, but now the market is fiercely competitive and expanding market share takes time. As the company plans to launch and expand innovative products throughout the market, there are also signs of slight improvement in revenue trends in the second half of the year compared to the first half.
In addition, as Nike's CEO takes office, the market is also looking forward to Hill, who enjoys a high reputation among retail partners, rebuilding the tense relationship with wholesalers, reversing Nike's declining performance, and most importantly, accelerating the research and innovation of new products.
The revenue of Greater China region has ended its seventh consecutive increase, and the company is optimistic about the prospects of this market
Nike's sales in Greater China for the quarter were $1.666 billion, exceeding market expectations and declining by 4% year-on-year. Its EBIT decreased by 4%, while sales in North America decreased by 11% year-on-year.
Revenue situation by region
EBIT situation by region
Previously, Nike China achieved positive growth for seven consecutive quarters, but the company had warned of a "weak outlook". During the 2024 fiscal year conference call, Nike executives stated that due to the macroeconomic situation, Nike's customer traffic across all channels in China has been declining since April.
Fran said that the demand for classic series in the Chinese market is strong, and Jordan has a large business scale in the Greater China region. The company is also closely monitoring and managing this business. At the same time, Nike's story in innovation and athletic performance in Greater China has received positive feedback from the market, with a significantly higher demand for innovation in the Chinese market compared to other markets. "Innovation has the highest proportion in China's business portfolio, while other regions do not.
When it comes to the performance of the Chinese market, Flender said that the company is focused on the long term. Although it has lowered its short-term expectations for the Chinese market for the rest of this year, the growth of the Chinese market is still supported, and the company is optimistic about Nike's long-term development prospects in Greater China. Nike will continue to leverage its innovation advantages to provide more support for the Chinese market, especially in the areas of products, digital platforms, and supply chain, in order to continuously meet the needs of local consumers. We are confident in Nike's long-term development in Greater China and the broad prospects of the Chinese sports industry.
As of the close on October 1st, Nike's stock price closed at $89.13 per share, up 0.83%, and fell more than 6% after trading. Since the beginning of the year, it has fallen by nearly 17%.