Nike Makes History for The First Time in 7 Years (But Not The Good Kind)

Well, in true Biden fashion, it looks like Nike just tripped over its own shoelaces. Again.

Shares of the sneaker giant decided to go cliff jumping this morning, dropping more than 7% after the company announced it was pulling its financial guidance for the year. Oh, and did I mention they’re making history? They also decided to cancel their first investor day in seven years. So, if you were hoping to see what fresh ideas Nike had up their sleeve, you’ll have to wait – and probably lower your expectations while you’re at it.

In case you missed it, Nike’s revenue fell by 10% last quarter compared to the same period a year ago, and their profit? Down a painful 28%. And it doesn’t stop there—executives warned that this quarter’s sales could plummet another 10%. Let’s just say, things aren’t the way they used to be (in your grandpa voice).

Morningstar equity analyst David Swartz had the best "I told you so" moment, saying Nike’s report was “pretty much what people expected.” Translation: No one’s surprised, but everyone’s still disappointed. Nike’s been dropping hints since last December that the sportswear market wasn’t exactly setting the world on fire. Apparently, their innovation cycle wasn’t going to do them any favors either. Swartz summed it up: “Right now, Nike is in a situation where it doesn't have a lot of new products coming out, and it is pulling back on some other products.” That’s not exactly a winning game plan, is it?

The hits keep coming. Nike Direct revenues (the sales they make directly through their stores and website) fell by 13%. Their wholesale business didn’t fare much better, dropping 8%. Even their staple, the Air Jordans, are limping along. Sales for these legacy products fell even more than the company’s overall business, and online sales for the iconic Air Force 1s, Dunks, and Jordans were down nearly 50%. You know things are bad when even Michael Jordan can’t save the day.

Let’s not forget about China, where Nike's revenue clocked in at $1.67 billion – a smidge above expectations, but not enough to make up for the anemic sales in other parts of the business. The Chinese market has been sluggish, and with consumer spending still dragging its feet, even the upcoming government stimulus isn’t likely to have Nike bouncing back soon.

But the real gut punch came when Nike decided to pull its full-year guidance, citing the upcoming CEO change. With Elliott Hill stepping in to replace John Donahoe, the company claimed they needed some “flexibility” to let Hill work his magic and develop a turnaround plan. The way things are going, though, Hill’s going to need a lot more than flexibility – like, maybe a time machine to bring back the days when people were lining up for hours to buy the latest Jordans.

Nike’s CFO Matthew Friend used his speaking opportunity to lower expectations: “A comeback at this scale takes time, and while there are some early wins, we have yet to turn the corner.” Translation: It’s gonna get worse before it gets better. Friend also hinted that revenue for the current quarter could drop another 8% to 10%, worse than the 6.7% decline Wall Street had braced for.

So what’s next for Nike? Well, don’t expect any miracles overnight. Analysts like Jefferies’ Randal Konik are betting that incoming CEO Elliott Hill won’t really move the needle until 2026. But if you’re a “follow the billionaires” type, things might be getting interesting. Billionaire Ken Fisher’s Fisher Asset Management picked up over 1.7 million Nike shares in Q2 2024—worth about $140 million. Not far behind, Steven Cohen’s Point72 bought more than 360,000 shares, valued around $30 million. Clearly, the big boys are making moves.

(Source: Fortune)

Now, why should you care? Let’s break it down: Nike’s current earnings per share (EPS) sits at $0.70, beating Wall Street’s expectations of $0.52. Sure, profits are down 28%, but with a P/E ratio of around 23x, it’s trading at a reasonable valuation compared to its historical highs. If you’re looking long-term, Nike’s not exactly priced for a quick bounce, but more for a slow and steady comeback. So unless you’re betting Nike’s going to disappear from the planet, this might be a prime buying opportunity.

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