Nike Inc (NKE) Q1 2025 Earnings Call Transcript Highlights: Revenue Decline Amidst Gross Margin ...
Revenue: Declined 10% on a reported basis and 9% on a currency neutral basis.
NIKE Direct: Down 12%, with NIKE stores up 1% and NIKE Digital down 20%.
Wholesale: Down 7%.
Gross Margin: Expanded 120 basis points to 45.4%.
SG&A: Declined 2% on a reported basis.
Effective Tax Rate: 19.6% compared to 12% for the same period last year.
Diluted Earnings Per Share: $0.70.
North America Revenue: Down 11%, with NIKE Direct down 11%, NIKE Digital down 15%, and NIKE stores down 1%.
EMEA Revenue: Down 12%, with NIKE Direct down 12%, NIKE Digital down 24%, and NIKE stores up 3%.
APLA Revenue: Down 2%, with NIKE Direct down 4%, NIKE Digital down 15%, and NIKE stores up 9%.
Greater China Revenue: Down 3%, with NIKE Direct down 16%, NIKE Digital down 34%, and NIKE stores down 4%.
Q2 Revenue Guidance: Expected to be down in the 8% to 10% range.
Q2 Gross Margin Guidance: Expected to be down approximately 150 basis points.
Q2 SG&A Guidance: Expected to be roughly flat versus the prior year.
Q2 Other Income and Expense: Expected to be $30 million to $40 million.
Q2 Effective Tax Rate: Expected to be in the high-teens range.
Release Date: October 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Nike Inc (NYSE:NKE) reported gross margin expansion of 120 basis points to 45.4%, driven by lower product costs and strategic pricing actions.
The company saw double-digit growth in new footwear products, indicating strong consumer interest in innovation.
Nike Inc (NYSE:NKE) experienced growth in multiple sport dimensions, including men's fitness, global football, and running footwear.
The company's Pegasus 41 launch delivered mid-teens growth above last year's model, showcasing successful product innovation.
Nike Inc (NYSE:NKE) is seeing positive partner feedback on its future product pipeline, with strong order books for spring '25.
Negative Points
Nike Inc (NYSE:NKE) reported a 10% decline in revenue on a reported basis and 9% on a currency-neutral basis for Q1.
The company experienced significant traffic declines across Nike Direct, particularly in Nike Digital and partnered stores in Greater China.
Retail sales underperformed expectations, leading to elevated marketplace inventories and higher promotional activity.
Nike Inc (NYSE:NKE) is withdrawing its full-year guidance due to the CEO transition and will provide quarterly guidance instead.
The company expects continued declines in its men's and women's lifestyle business and the Jordan brand throughout fiscal '25.
Q & A Highlights
Highlights from Nike Inc (NYSE:NKE) Q1 2025 Earnings Call
Q: Can you break down the inventory situation regionally, especially in China and North America? A: Matthew Friend, CFO: Retail sales have underperformed plans, leading to slightly elevated inventory in North America and China. We anticipate needing to be more promotional to manage this inventory while scaling new ideas and concepts.
Q: What were the biggest challenges in the quarter, and what metrics are you monitoring for comeback progress? A: Matthew Friend, CFO: Greater China underperformed our plan, and general macro softness was observed across geographies. Digital sales were down 20%, largely due to declines in classic franchises. We are focusing on new products and innovation to drive growth.
Q: Can you reconcile the spring order books being lower than expected with the positive outlook for the second half? A: Matthew Friend, CFO: Spring order books came in flat, slightly below expectations. However, we are encouraged by the growth in newness and innovation, particularly in Running, which is showing double-digit growth in order books.
Q: How large are the core franchises being reset, and what are their margins compared to the rest of the product? A: Matthew Friend, CFO: Classics are an important part of our portfolio but have become too concentrated. We are managing these franchises to create better balance. They drive attractive margins, especially in digital channels, but we are focusing on accelerating newness and innovation.
Q: How receptive are wholesale partners to new launches, and what is their inventory level? A: Matthew Friend, CFO: Partners are leaning in to reignite growth. We are investing with partners to elevate and differentiate our brand at retail, with positive feedback on new concepts like the women's fitness concept with DICK'S and the HomeCourt concept with Foot Locker.
Q: How far has the Running business fallen, and what is the outlook for gross margins in Q2? A: Matthew Friend, CFO: We lost market share in Running specialty channels but are seeing momentum building. Gross margin pressures in Q2 are expected across the portfolio, with higher promotions and supply chain deleverage being key factors.
Q: What are you seeing in the China business, and how are inventory levels by channel? A: Matthew Friend, CFO: Traffic was soft across all channels, and the marketplace has been promotional. We are managing inventory carefully and focusing on innovation and performance products, which are resonating well with consumers.
Q: What are the key metrics you are monitoring to gauge comeback progress throughout the year? A: Matthew Friend, CFO: We are encouraged by the performance of new products, which delivered double-digit growth. Key metrics include retail sales trends, inventory levels, and the performance of new innovations in the market.
Q: How are you managing the balance between direct-to-consumer and wholesale channels? A: Matthew Friend, CFO: We continue to see opportunities to drive efficiencies in our direct business while focusing on balanced growth across the entire marketplace. Investments in DTC are in place and will become leverageable over time.
Q: How are you addressing the challenges in the digital channel? A: Matthew Friend, CFO: Digital sales were down 20%, largely due to declines in classic franchises. We are managing inventory carefully and focusing on placing products where traffic is highest to drive full-price realization.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.