Nike plunges as investors weigh slowing sales, falling margins
Shares are down sharply from their 2021 peak and sit at levels that haven’t been seen consistently since 2018.
Nike shares tumbled 7% after the sneaker giant warned of slowing sales and margin pressure ahead.
The stock initially jumped after the bell Thursday when the sneaker giant’s Q3 earnings report wasn’t as bad as feared — but that optimism didn’t last long. Shares reversed course Friday morning after Nike warned on its conference call of more sales declines and a slower recovery in China, a key market. China’s Q3 sales tumbled 17% to $1.73 billion.
Looking ahead, Nike expects fourth-quarter sales to drop by a low-teens percentage, roughly in line with analysts’ forecasts, as it grapples with a number of headwinds including tariffs, volatile foreign exchange rates, and fading consumer confidence. The company also warned that margins would come under further pressure.
If you had invested in Nike in October of 2015 and held, your stock would be roughly flat now. The last time shares traded this low on a consistent basis was in March of 2018.
Brand fatigue and weaker consumer spending have weighed on Nike’s performance in the region, prompting the company to double down on its presence, including through investments in major sports leagues like China’s national basketball, track and field, and football teams.
“China specifically is where we’re being the most proactive in cleaning up the marketplace, and we’ll get back to inspiring the Chinese consumer in a more meaningful way,” Nike CEO Elliott Hill said on the earnings call.
Meanwhile, despite Nike’s push to clear out excess inventory with aggressive discounts, the strategy did little to lift margins, pulling them down to 41.5% for the quarter, down from 44.8% a year earlier.
Not everyone is pessimistic: Goldman Sachs reiterated its buy rating on the stock Friday, saying, “We remain constructive on the stock but acknowledge the company is early in its turnaround journey.”
