Market Analysis

Nike withdrew its annual revenue forecast on Tuesday, just as a new CEO is preparing to take over at the sportswear giant, which is facing a challenging holiday season marked by discounts and sluggish online traffic.

Following the announcement, Nike's (NYSE: NKE) shares dropped 6% in after-hours trading. Earlier, the stock had fluctuated after the company reported disappointing quarterly sales growth, despite surpassing Wall Street's profit expectations.

Additionally, Nike postponed its investor day, which was initially scheduled for November 19.

Traffic at Nike-owned stores and online platforms declined more than anticipated, leading to an inventory buildup, according to CFO Matthew Friend, who spoke on a post-earnings call that did not include outgoing CEO John Donahoe. Friend also noted that sales dropped even with increased promotions at its wholesale and retail partners.

Nike's recent growth has stalled, challenged by more agile competitors like On and Deckers' Hoka. Last month, the company announced the return of veteran executive Elliott Hill, who will replace Donahoe as CEO and is expected to steer the company back on track.

Nike's stock has fallen 18% this year but has rebounded 10% since September 19, when Hill's appointment was revealed.

Friend stated that withdrawing the revenue forecast gives Hill the flexibility to reassess Nike’s strategies and long-term business trends to better position the company for fiscal 2026 and beyond. Previously, Nike had projected a mid-single-digit decline in annual revenue.

In place of an annual outlook, Nike provided guidance for its September-November quarter, anticipating a sales decline of 8% to 10%, greater than the 7% drop analysts had forecast, according to LSEG data. Gross margins are expected to shrink by about 150 basis points in the same period.

"We recognize that a return to strong growth will take time," Friend noted, "but we are confident in our foundation, particularly with Elliott leading the way."

Hill faces the task of rebuilding Nike's wholesale relationships, which had weakened under Donahoe, who had prioritized direct-to-consumer sales through Nike's stores and websites. This strategy led U.S. retailers like Foot Locker (NYSE: FL) and Dick's Sporting Goods (NYSE: DKS) to replace Nike's products with those of emerging competitors.

Friend highlighted that Hill, as Nike's North America general manager in 2010, helped the company recover through a strategy focused on "reprofiling the marketplace around sport." A similar approach is needed now, he added.

"When we talk about sharpening our focus on sport, it's not just about selling more performance products," Friend explained. "It's about forging deeper connections with consumers through sport."

Nike's total revenue for the first quarter fell 10.4% to $11.59 billion, slightly below analysts' 10% decline estimate.

Despite efforts to accelerate innovation and boost demand with new products like the Air Max Dn and Pegasus 41, analysts argue Nike has yet to see significant returns.

"I’m pretty disappointed by the revenue numbers," said Dave Wagner, head of equities at Aptus Capital Advisors, which holds a stake in Nike. "This is a weak report, both quantitatively and qualitatively, especially with the cancellation of the investor day."

Paraphrasing text from "Reuters" all rights reserved by the original author.