Nike stock plunges on surprise forecast of drop in sales

It was the worst day ever for the stock with losses wiping out $28.4bn from Nike’s market valuation.

Nike shoes of Naomi Osaka during the match between Mutua Madrid Open Masters
Nike is under pressure with its market share falling for the past couple of years [File: David S Bustamante/Soccrates/Getty Images]

Nike’s stock has plunged as a forecast for a surprise drop in annual sales amplified investor concerns about the pace of the sportswear giant’s efforts to stem market share losses to upstart brands such as On and Hoka.

It was the worst day ever for the stock, which slumped 20 percent on Friday, with the losses wiping out $28.41bn from the company’s market valuation.

On Thursday, the company had projected a mid-single-digit percentage fall in fiscal 2025 revenue, compared with analysts’ estimates of a near 1 percent rise.

“Nike is at a point where they want to put out the most conservative guidance they can, such that they’re setting the bar low for themselves and hopefully it’s a bar they can beat,” said Art Hogan, chief market strategist at B Riley Wealth.

Its forecast dragged shares of rivals and sportswear retailers across Europe, the United Kingdom and the United States on Friday.

British sportswear retailer JD Sports lost 5.4 percent at Friday’s close, while Germany’s Puma fell 1 percent. Adidas’s shares were up marginally.

“Nike’s been under pressure for a couple of years now. I certainly think they have an opportunity now that the valuation’s been reset extremely low to start getting some sponsorship, but it’s just not going to happen today or this week,” Hogan added.

The company’s US market share in the sports footwear category fell to 34.97 percent in 2023 from 35.37 percent in 2022, and 35.4 percent in 2021, according to GlobalData.

Meanwhile, other sporting goods brands such as Hoka, Asics, New Balance and On accounted for 35 percent of the global market share in 2023 compared with the 20 percent held over the 2013-2020 period, according to a June RBC research report.

To curb a worsening sales decline, Nike has cut back on oversupplied brands including Air Force 1, as part of a $2bn cost-cutting plan launched late last year.

The sportswear giant is also tweaking its product lineup to roll out new $100-and-under sneakers in countries around the world to appeal to price-conscious consumers.

It will also roll out this year an Air Max version and Pegasus 41 with a full-length foam midsole made from ReactX to boost sustainability.

“This is still Nike, and we expect their size and scale to prove a long-term competitive advantage, but the burden of proof [is] on management execution at this point,” said BMO Capital Markets analyst Simeon Siegel.

Management shakeout?

The underperformance over the past year has led to some Wall Street analysts raising the possibility of a management shake-up ahead of the company’s investor day this fall.

“In retail, if you have two bad quarters, you’re usually out the door,” said Jessica Ramirez, senior analyst at Jane Hali & Associates.

“I think it [a leadership change] is very much needed.”

CEO John Donahoe is in his fourth year of a five-year commitment as Nike’s top boss. The former eBay CEO, who succeeded Mark Parker, was hired to focus on strengthening the company’s digital channel sales.

“I have seen Nike’s plans for the future, and wholeheartedly believe in them. I am optimistic in Nike’s future, and John Donahoe has my unwavering confidence and full support,” Phil Knight, co-founder and chairman emeritus, said in a statement.

At least six brokerages downgraded the stock, and 15 cut their price targets.

Source: Reuters