Shares of Nike (NYSE: NKE) fell 20.7% in June 2024, according to data from S&P Global Market Intelligence. The athletic apparel and footwear giant was doing fine until the very last market day of the month, where a disappointing earnings report resulted in a single-day price drop of 17.8%.
Fourth-quarter earnings reveal hidden challenges for Nike
At first glance, Nike’s fourth-quarter results didn’t look terrible. Currency-adjusted revenues came in at $12.6 billion, 2% below the year-ago period’s figure. Adjusted earnings of $1.01 per share represented a 53% year-over-year jump. Your average analyst firm was looking for earnings of roughly $0.85 per share on sales near $12.9 billion, so the report was a mixed bag with a slight revenue miss but a large bottom-line surprise.
But the headline numbers don’t tell the whole story.
Nike experienced an 18% revenue drop for the Converse brand and an 8% slide in Nike Direct e-commerce sales. The digital weakness extended to the Greater China market, which otherwise provided a bright spot with a 7% total revenue gain.
And the bad news didn’t stop there. Nike’s first-quarter guidance pointed to a 10% revenue drop due to continued Nike Direct weakness and “aggressive” changes to the classic footwear portfolio.
Does Nike’s strategic timing make sense?
The summer of 2024 should have been a golden moment for Nike, as the upcoming Paris Olympics should amplify the company’s marketing efforts. But the Chinese sales surge is slowing down, currency conversion trends don’t look helpful, and the e-commerce operation isn’t a star performer these days.
Some of the softness is to be expected, since Nike is revamping its product portfolio in a big way. But that doesn’t excuse the Nike Direct weakness, and maybe the company shouldn’t have launched a product makeover project in a summer Olympics year. The biggest non-annual sporting events of 2025 are limited to rugby, regional soccer championships, and two multi-sport events focusing on non-Olympic sports. These athletes deserve tons of respect, but they aren’t revenue boosters for Nike like the FIFA World Cup or summer Olympics tend to be.
But what’s done is done and there’s no going back on these decisions. Where is Nike going from here, though?
You could see 2024 as a rebuilding year, setting Nike up for greater achievements in the future. The revitalized product lineup should be ready to roll alongside the 2026 World Cup, and the global economy may have stabilized by then. Since Nike’s stock now trades at prices not seen since the early COVID-19 crash in March 2020, this could be a great time to pick up a shares of a quality company on the cheap.
Then again, this year’s questionable decision-making makes me suspect that Nike’s management could continue to make mistakes, and two years is a long time in the fickle consumer market. And the weak e-commerce operation doesn’t inspire trust in Nike’s C-suite team, either.
So if you’re willing to bet on a comeback for this legendary brand, please keep that investment rather modest. This isn’t a bet-the-farm or -back-up-the-truck opportunity to take advantage of an obvious stock market error, but a risky bet on a stumbling giant.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
Why Nike Stock Lost 21% Last Month was originally published by The Motley Fool
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