Nike‘s recent troubles in the North American market are impacting the stock prices of some of its retail partners.
In its second quarter report issued Thursday, Nike Inc. said revenues were down 3 percent in North America, with wholesale sales down 9 percent in the region. Part of the reason for the decline, Nike chief financial officer Matthew Friend told analysts during a call, were actions taken to cut down on inventory excesses in the region.
Nike warned that it expects third-quarter revenue to be slightly negative and fourth-quarter revenue to be up in the low-single digits. For the full year, revenue is expected to be up 1 percent compared to the prior year.
Nike’s stock fell close to 12 percent in premarket trading Friday following its results and continued to fall during the day, diving 13.7 percent once the market opened. Shares of some of its retail partners, including , Dick’s Sporting Goods and Hibbett were also down before markets opened on Friday. By midday, all these stocks were still down and the drop from Nike had pulled more than 81 points from the Dow.
Shares of competitors like Adidas, Under Armour and On were also down Friday.
Overall, Nike reported mixed results for the second quarter, with revenues up 1 percent to $13.39 billion, compared to the prior year, slightly short of analysts’ expectations. Diluted earnings per share were $1.03, which was up 21 percent year-over-year and ahead of estimates that projected EPS at 85 cents for the second quarter. The activewear giant also said it plans to save up to $2 billion in costs over the next three years by “simplifying our product assortment, increasing automation and use of technology, streamlining our organization, and leveraging our scale to drive greater efficiency.”
Despite the troubles in North America this quarter, Nike said it saw midsingle-digit retail sales growth with key retail partners such as Dick’s Sporting Goods, JD Finish Line and Hibbett. Notably, the Swoosh branded firm did not mention Foot Locker, another key retail partner that has recently touted its strong Nike relationship.
Friend added that Nike is seeing the “highest mix of current season inventory” that it has seen in several seasons across most of its retail partners.
“When we look at the level of inventory in our partners relative to their current level of retail sales, we feel good about the weeks of supply that we have there,” Friend said. “We feel great that our partners are positioned to put our newest and most relevant product in front of the consumer.”
However, Williams Trading analyst Sam Poser pointed out in a Thursday note that while access to premium product has boosted Nike sales at some retailers, “the sell-though rates of much of the best product, including Jordan Retros, Air Force 1s and Dunks, have slowed of late, based on our checks.”
For example, he noted that “Nike’s management pointed out that the Air Jordan 11 Gratitude resulted in the largest volume ‘shock drop ever’ in November, but failed to point out that the sell-through rate on that shoe when it formally released in December was disappointing.”
Nike also sent warning signals about the cautious consumer demand environment in North America, which likely triggered the stock price declines of its retailers. Across all regions, including North America, Friend said turnout remained strong for big shopping events like back-to-school and Black Friday but was slow during the in-between periods, reflecting a similar trend outlined by Academy Sports + Outdoors (another Nike retailer) in November.
“We’ve also seen a continuation of the trend with customers coming in during the key shopping moments on the calendar and then retreating during the lulls,” Academy chief executive officer Steve Lawrence said in a call with analysts at the time.
However, Nike still appeared optimistic about the power of its new inventory to win over shoppers in 2024.
“At this point, we feel great about our inventory,” Friend said. “Newness and innovation is what will enable us to earn open to buy in our partners and will enable us to reaccelerate the top line.”
