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01/10 22:54
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals several challenges: declining revenues in key regions, margin pressures, and digital traffic headwinds. While there are positive aspects like growth in North America and strategic initiatives, the overall sentiment is dampened by significant headwinds in Greater China and digital channels. The Q&A section highlights management's confidence but also reveals uncertainties, especially in China. The lack of clear guidance and the impact of tariffs further contribute to a negative outlook. Given these factors, a negative stock price reaction is expected over the next two weeks.
Revenue Revenues were up 1% on a reported basis and down 1% on a currency-neutral basis. NIKE Direct was down 5% with NIKE Digital declining 12% and NIKE stores down 1%. Wholesale grew 5%. The reasons for these changes include higher wholesale discounts, increased product costs, and channel mix headwinds.
Gross Margins Gross margins declined 320 basis points to 42.2% on a reported basis. This was due to higher wholesale discounts, higher discounts in NIKE factory stores, increased product costs including new tariffs, and channel mix headwinds.
SG&A SG&A was down 1% on a reported basis. This was driven by lower brand marketing expense, reflecting prior year investment around key sports moments, partially offset by higher sports marketing expense.
Effective Tax Rate The effective tax rate was 21.1% compared to 19.6% for the same period last year, primarily due to decreased benefit from stock-based compensation.
Earnings Per Share (EPS) Earnings per share was $0.49. The reasons for this figure include the overall financial performance and the factors affecting revenue, gross margins, and SG&A.
Inventory Inventory decreased 2% versus the prior year as the company made steady progress on plans for a healthy marketplace by the end of the first half of fiscal '26.
North America Revenue Q1 revenue grew 4%. NIKE Direct declined 3%, with NIKE Digital down 10% and NIKE stores flat. Wholesale grew 11%. The reasons include shipment timing in the prior year, higher liquidation volume to value channels, and strategic actions to expand distribution.
EMEA Revenue Q1 revenue grew 1%. NIKE Direct declined 6%, with NIKE Digital down 13% and NIKE Stores up 1%. Wholesale grew 4%. The reasons include promotional activity in key countries and selective discounts on NIKE Direct to manage marketplace inventory.
Greater China Revenue Q1 revenue declined 10%. NIKE Direct declined 12%, with NIKE Digital down 27% and NIKE stores down 4%. Wholesale declined 9%. The reasons include lower store traffic, in-season sell-through headwinds, and a highly promotional digital marketplace.
APLA Revenue Q1 revenue grew 1%. NIKE Direct declined 6%, with NIKE Digital down 8% and NIKE Stores down 5%. Wholesale grew 6%. The reasons include mixed results across countries, elevated inventory requiring higher promotional activity, and proactive management of supply in the marketplace.
Sport Offense: Nike introduced the 'Sport Offense' strategy, aligning its three brands (Nike, Jordan, Converse) into sport-focused teams to enhance innovation and storytelling. This approach has already shown success, such as double-digit revenue increases in redesigned retail experiences.
Running Footwear: Nike redesigned key running shoes (Vomero, Structure, Pegasus) based on consumer insights, integrating technologies like Nike Air and ZoomX. This led to over 20% growth in the running category this quarter.
Global Football: Nike launched revamped football boots (Phantom 6) and plans to release new Tiempo and Mercurial models. The brand also reset its football identity with the 'Scary Good' campaign.
Outdoor Products: Nike ACG launched new innovations like Radical Air breathable apparel and the ACG Ultrafly Trail-Tuned Super Shoe, supported by an elite race team.
Partnership with SKIMS: Nike collaborated with SKIMS to launch a new performance training product line, receiving strong early consumer response.
North America: Revenue grew 4%, driven by double-digit growth in running, training, and basketball. Wholesale grew 11%, and Nike launched a brand store on Amazon, exceeding sales expectations.
Greater China: Revenue declined 10% due to structural challenges and lower seasonal sell-through. Nike is investing in retail refreshes and sport-focused strategies to address these issues.
EMEA: Revenue grew 1%, with strong performance in running and global football. However, sportswear declined due to challenges in classic footwear franchises.
Inventory Management: Nike reduced inventory by 2% year-over-year, with significant progress in North America and EMEA. However, Greater China and APLA still face elevated inventory levels.
Digital Strategy: Nike is repositioning its digital business to focus on full-price sales, reducing promotions and markdowns. Organic traffic remains a challenge.
Tariff Impact: New reciprocal tariffs are expected to cost Nike $1.5 billion annually, up from $1 billion. The company is implementing measures to mitigate these costs.
Win Now Actions: Nike's 'Win Now' strategy focuses on revitalizing its business through sport-specific innovations, retail enhancements, and market-specific actions. Progress is uneven across geographies.
Greater China performance: The business in Greater China faced a 10% revenue decline this quarter. Seasonal sell-through continues to underperform, requiring larger investments to keep the marketplace clean. Traffic in both owned and partner stores declined, and digital platforms remain highly promotional with deeper discounts. Inventory closeout mix remains elevated, and significant investments are needed to refresh retail environments and improve brand distinction.
Tariff uncertainty: New reciprocal tariffs have increased costs significantly, with an estimated gross incremental cost to NIKE of approximately $1.5 billion annually. This represents a major headwind to gross margins, with a 120 basis point impact expected for fiscal '26. The company is implementing mitigation actions, but the disruption remains a significant challenge.
NIKE Digital performance: NIKE Digital saw a 12% decline in revenue this quarter, with organic traffic slowing and promotional activity being reduced. The company is working to reposition NIKE Digital as a full-price business, but traffic and demand remain soft, particularly in EMEA and Greater China.
Sportswear business challenges: The sportswear business continues to decline, with challenges in building a clear product construct. Classic franchises like Air Force 1 and Air Jordan 1 are stabilizing, but others like the Dunk and Chuck Taylor are being aggressively managed down or reset. Converse is under new leadership and undergoing a marketplace reset, which will take time to yield results.
Inventory management: While progress has been made in reducing inventory levels in some regions, challenges remain in others, such as Greater China and APLA, where elevated inventory levels require higher promotional activity. The company is taking additional actions to rebalance inventory levels with retail sales trends.
Consumer caution: The company is operating in a dynamic environment with cautious consumer behavior, which is impacting demand and sales across various geographies and channels.
Marketplace transformation: Efforts to elevate and transform the marketplace are in early stages, particularly in North America and Greater China. While some progress has been made, the company is far from its ultimate goal of an integrated marketplace across digital and physical channels.
Revenue Expectations: Q2 revenues are expected to be down low single digits, including one point of benefit from foreign exchange. Fiscal '26 wholesale revenue is expected to return to modest growth, while NIKE Direct is not expected to return to growth for fiscal '26.
Gross Margin Projections: Q2 gross margins are expected to decline approximately 300 to 375 basis points, including a net headwind of 175 basis points from new incremental tariffs. Fiscal '26 gross margin will face a net headwind of 120 basis points due to tariffs.
Capital Expenditures and Investments: Continued investment in demand creation and rebuilding both Sport and Commercial Offense. Greater China will require investments to refresh retail environments and develop consistent plans across all sports.
Market Trends and Consumer Behavior: Organic traffic in NIKE Digital is declining double digits, and the business is repositioning to focus on full-price sales. Promotional activity is increasing in key markets like EMEA and Greater China, impacting sell-through rates.
Business Segment Performance: North America is leading the global recovery with growth in running, training, and basketball. Greater China faces structural challenges, with revenue down 10% in Q1 and requiring more time for recovery. Converse is under new leadership and undergoing a marketplace reset.
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The earnings call reveals several concerning factors: declining revenues in key regions, significant EBIT declines, and gross margin pressures due to tariffs. The Q&A highlights uncertainties, especially in China, and management's reluctance to provide clear timelines or targets. The positive aspects, such as growth in North America and certain product lines, are overshadowed by broader challenges. Without a market cap, the stock's reaction is uncertain, but the overall sentiment suggests a negative outlook for the next two weeks.
The earnings call reveals several challenges: declining revenues in key regions, margin pressures, and digital traffic headwinds. While there are positive aspects like growth in North America and strategic initiatives, the overall sentiment is dampened by significant headwinds in Greater China and digital channels. The Q&A section highlights management's confidence but also reveals uncertainties, especially in China. The lack of clear guidance and the impact of tariffs further contribute to a negative outlook. Given these factors, a negative stock price reaction is expected over the next two weeks.
The earnings call indicates challenges with declining revenues and margins, particularly in APLA and due to tariffs. Management's cautious approach and lack of clear guidance on recovery timelines, especially in China, suggest uncertainties. Despite some positive elements like innovation and marketplace cleanup, the overall sentiment is negative due to revenue declines, margin pressures, and unclear recovery paths.
The earnings call highlights several negative aspects: declining revenues, significant margin compression, and challenges in key markets like Greater China. Despite EPS growth, the lack of guidance and no shareholder return plans further dampen sentiment. The Q&A reveals ongoing inventory issues and promotional pressures, with management providing unclear timelines for resolution. Although there is some optimism in product innovation, the overall outlook is hindered by macroeconomic and internal challenges. Without a market cap, the prediction leans negative due to the breadth of issues discussed.
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