Nike shares slide as guidance flags ‘severe issues’; Q2 results top estimates

Investing.com — Nike shares initially jumped in extended trading after the company topped expectations for the fiscal second quarter. However, the stock reversed course and declined following disappointing guidance and updates during the earnings call.

Nike Inc (NYSE:) shares slumped 4% in premarket trading Friday.

The sportswear giant reported Q2 earnings per share (EPS) of $0.78 on revenue of $12.4 billion. Analysts polled by Investing.com anticipated EPS of $0.65 on revenue of $12.18B.

Revenue fell 8%, with Nike brand revenues down 7% to $12B. Gross margin fell 100 basis points to 43.6%, driven by “higher discounts and changes in channel mix,” the company said.

In China, the company’s struggles continue as sales fell by 27% to $375M.

New President and CEO Elliott Hill emphasized several key strategic priorities, including a stronger emphasis on sports, faster innovation, enhancing the brand through reduced e-commerce promotions, and improving partnerships with wholesale distributors.

Looking ahead, Nike has projected a low double-digit percentage decline in Q3 revenue, falling short of analyst estimates of an 8% drop. The company also indicated that fourth-quarter revenue would decline even further, compared to current expectations of a 6% drop.

According to Raymond (NS:) James analysts, this outlook “reflects Nike’s accelerating efforts to clean up excess inventory to create a stronger foundation to grow and elevate the brand, and ongoing efforts to recalibrate Direct vs Wholesale.Classic product continues to be managed lower as innovation ramps up.”

“Nike remains a “show me” story, in our opinion. Accelerating innovation and brand elevation are the right moves, but it’s unclear if/when revenue will inflect higher especially given historic tailwinds (Direct, China) remain under duress,” they added.

Separately, Jefferies analysts commended Hill’s vision, but highlighted that Nike’s previous leadership missteps in product and distribution have left the company vulnerable.

“It’s now clear NKE’s massive market share is being ‘Pac-Manned’ away by the competition across both performance and classic segments,” analysts led by Randal J. Konik wrote.

“Guidance indicates severe issues, with newness not guaranteed to improve the situation, as evidenced by significant declines in digital revenues. Bottom line: Just Don’t Buy It.”

Jefferies trimmed the price target on NKE shares from $85 to $75, reiterating a Hold rating. 

Yasin Ebrahim contributed to this report.