NIKE Inc. NKE reported second-quarter fiscal 2025 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. However, revenues and earnings per share (EPS) fell year over year. The company’s EPS of 78 cents declined 24% from the year-ago level. However, the figure beat the Zacks Consensus Estimate of 63 cents.
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Revenues of the Swoosh brand owner declined 8% year over year to $12.35 billion but surpassed the Zacks Consensus Estimate of $12.11 billion. On a currency-neutral basis, revenues were down 9% year over year. The top-line decline was in line with the company’s projection of an 8-10% decline.
Sales were affected by unfavorable market trends, as traffic and retail sales fell below expectations in September and October. However, in November, the company experienced a rebound, with both digital and physical traffic turning positive, especially during the quarter’s major consumer events.
NIKE, Inc. Stock Price, Consensus and EPS Surprise
NIKE, Inc. price-consensus-eps-surprise-chart | NIKE, Inc. Quote
Sales at NIKE Direct were down 13% on a reported basis and 14% on a currency-neutral basis to $5 billion. The decline resulted from a 21% drop in NIKE Brand Digital and a 2% fall in NIKE-owned stores. Also, wholesale revenues declined 3% year over year on a reported basis and 4% on a currency-neutral basis to $6.9 billion.
As discussed in the previous quarter, NIKE will continue to provide quarterly guidance throughout the transition period. The company has outlined its third-quarter fiscal 2025 guidance.
Elliott has laid out a series of strategic actions to reposition the business and revitalize the momentum of the NIKE brand through sport. Some of these initiatives are already in progress, and the company is accelerating implementation while others are newly introduced. Notably, NIKE is transitioning its digital platform to a full-price model and reducing the reliance on promotional activity. Concurrently, the company is scaling back its investment in performance marketing, which will reduce paid traffic.
NIKE’s shares declined 0.5% in the after-hours trading session on Dec. 19. Shares of this Zacks Rank #3 (Hold) company have lost 10.6% in the past three months compared with the shoes and retail apparel industry’s 8% decline.
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NKE’s Operating Segments Synopsis for Q2
The NIKE Brand revenues of $11.95 billion declined 7% year over year on a reported basis and 8% on a currency-neutral basis. Results were affected by declines across all geographies.
We estimated total NIKE Brand revenues to decline 8.5% year over year to $11.8 billion due to a 10.6% decline in Direct-to-Consumer and a 6.8% fall in the Wholesale business.
Within the NIKE Brand, revenues in North America declined 8% year over year to $5.2 billion. Sales at NIKE Direct were down 15% in the region, including a 22% decrease at Nike Digital and a 3% fall at NIKE Stores. Wholesale sales plummeted 1% year over year in North America.
In EMEA, the company’s revenues declined 7% year over year on a reported basis and 10% on a currency-neutral basis to $3.3 billion. The Wholesale business revenues fell 4% year over year. NIKE Direct revenues for the segment dipped 20%, with a 32% decrease at NIKE Digital, offset by 3% growth in NIKE Stores.
In Greater China, revenues dropped 8% year over year on a reported basis and 11% on a currency-neutral basis to $1.7 billion. NIKE Direct fell 7%. NIKE Digital revenues dropped 4% year over year and NIKE stores decreased 8%. Wholesale revenues for the region declined 15% year over year.
In APLA, revenues fell 3% year over year on a reported basis and 2% on a currency-neutral basis to $1.7 billion. NIKE Direct dipped 4%, driven by an 8% decline in NIKE Digital, negated by a 2% rise in NIKE stores. Wholesale revenues declined 1% in the region.
Revenues at the Converse brand dipped 17% on a reported basis and 18% on a currency-neutral basis to $429 million. The decline was due to softness across all territories.
A Look at NIKE’s Costs & Margins
NIKE’s gross profit declined 10% year-over-year to $5.4 billion, while the gross margin contracted 100 basis points (bps) to 43.6%. The gross margin decline was caused by increased discounts and shifts in channel mix, partially offset by reduced product input costs and lower warehousing and logistics expenses. We anticipated the gross margin to decline 150 bps to 43.1%.
Selling and administrative expenses fell 3% to $4 billion. As a percentage of sales, SG&A expenses increased 140 bps year-over-year to 32.4%. The rise in SG&A expenses rate was led by higher demand creation expenses, offset by reduced operating overhead expenses. Our model predicted SG&A expenses of $4.1 billion, suggesting flat year-over-year expenses.
Demand creation expenses increased 1% year-over-year to $1.1 billion, led by higher sports marketing costs, partially offset by lower brand marketing expenses. Operating overhead expenses were down 5% year-over-year to $2.9 billion on reduced wage-related expenses and lower other administrative costs.
Our model predicted demand creation expenses of $1.3 billion, indicating a year-over-year rise of 14.1%. Operating overhead expenses were anticipated to decline 5.1% year-over-year to $2.9 billion.
NKE’s Balance Sheet & Shareholder-Friendly Moves
NIKE ended the quarter with cash and cash equivalents of $8 billion, up nearly 1% year over year. Short-term investments totaled $1.8 billion, down 11% year over year. As of Nov. 30, 2024, the company had a long-term debt (excluding current maturities) of $8 billion and shareholders’ equity of $14 billion.
As of Nov. 30, inventories totaled $8 billion, roughly unchanged from the previous year, as an increase in units was offset by lower product input costs and shifts in product mix.
In the fiscal third quarter, the company returned $1.6 billion to shareholders, including $1.1 billion in share repurchases and $557 million in dividends. As of Nov. 30, NIKE repurchased 112.8 million shares for $11.3 billion as part of its four-year $18-billion share repurchase program approved in June 2022.
NKE’s Q3 Outlook
NIKE outlined its expectations for third-quarter fiscal 2025. NIKE estimates revenues to decline low double-digits in the fiscal third quarter. This reflects the early stages of the actions outlined by Elliott, along with increased foreign exchange headwinds, partially mitigated by a timing benefit from Cyber Week shifting into the fiscal third quarter.
NKE expects the fiscal third-quarter gross margin to decline 300-350 bps. The company anticipates SG&A expenses to be down slightly year-over-year, including restructuring charges in the previous year. NKE estimates other income and expenses, including net interest income, to be $30-$40 million.
Key Picks in NIKE’s Industry
Some better-ranked companies are Wolverine World Wide WWW, Adidas ADDYY, and Steven Madden SHOO.
Wolverine is engaged in the designing, manufacturing and distribution of a wide variety of casual and active apparel and footwear. It currently flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Wolverine’s 2024 EPS of 89 cents indicates a substantial increase from 5 cents reported in the year-ago quarter. WWW has a trailing four-quarter earnings surprise of 17%, on average.
Adidas is a leading brand in the sporting goods market with strong positions in footwear, apparel and hardware. ADDYY carries a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for ADDYY’s 2024 sales and earnings indicates an increase of 6.5% and a substantial 697.2%, respectively, from the year-ago period’s reported level. Adidas has a trailing four-quarter negative earnings surprise of 14.2%, on average.
Steven Madden designs and sells fashion-forward name-brand and private-label footwear for women, men and children. SHOO carries a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Steven Madden’s 2024 sales and EPS indicates growth of 13.6% and 8.6%, respectively, from the year-ago reported figures. SHOO has a trailing four-quarter earnings surprise of 9.8%, on average.
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NIKE, Inc. (NKE) : Free Stock Analysis Report
Wolverine World Wide, Inc. (WWW) : Free Stock Analysis Report
Adidas AG (ADDYY) : Free Stock Analysis Report
Steven Madden, Ltd. (SHOO) : Free Stock Analysis Report
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