Nike posts surprise quarterly revenue drop on choppy demand

(Reuters) -Nike reported a surprise drop in fourth-quarter revenue on Thursday, as it struggled with low demand for its apparel and footwear amid rising competition from newer brands, sending its shares down nearly 6% in extended trade.

Even though Nike (NYSE:) has outlined a plan to streamline its portfolio, analysts note that it would be some time before the sportswear company can revive demand as innovation and launches of new product lines take time.

The company’s efforts to drive more sales through its direct-to-consumer channel have also taken a hit as customers have turned more picky about their non-essential spending and look to spend their dollars on more fashionable and innovative brands such as On and Deckers’ Hoka.

Nike is also losing ground to rival Adidas (OTC:)’ retro-style Gazelle and Samba sneakers, which have helped the European sportswear maker see a rebound in demand after its damaging break-up with rapper Ye.

The Air Jordan maker is also doubling down on wholesale partnerships after years of avoiding that path. But the company’s direct-to-consumer push was not driving growth, Nike executives said in March.

The new strategy helped Nike’s wholesale revenue rise 5% on a reported basis in the fourth quarter ended May 31, while growth in its direct-to-consumer business fell 8%.

Nike’s net revenue fell 1.71% to $12.61 billion, compared with analysts’ average estimate of $12.84 billion, according to LSEG data.

“It is to some degree not a big surprise, but it’s clearly not a strong sales number and the gross margin is also not strong … it was up from last year, but it is lower than what Nike could be doing at this point,” Morningstar analyst David Swartz said.

Gross margin increased 110 basis points to 44.7%, primarily due to Nike’s $2 billion cost savings plan including layoffs.

Nike’s adjusted earnings per share came in at $1.01, above LSEG estimates of 83 cents.