The US sporting goods company Nike has stumbled again on the way out of its crisis.
The rival of adidas and PUMA was able to show more business overall than experts thought. However, there are still problems in crucial areas, for example in the important giant market of China or with the Converse brand. Nike boss Elliott Hill, who is supposed to lead the company back to the top after some tough disappointments, does not see the group having reached its goal after the second quarter (end of November).
This is how Nike shares react
Investors are impatient and let the shares fall sharply on Friday, also because there is a risk of another drop in sales in the current quarter.
Nike shares temporarily fell 11.67 percent to $57.92 in premarket trading on the NYSE. This means that the price decline of a good 13 percent in regular trading since the beginning of the year is likely to increase noticeably. With prices below $60, the company would be even further away from its old heights – four years ago the shares were still worth a good $179.
Self-inflicted crisis
Nike is currently trying to find its way out of a slump into which the company had maneuvered itself. In recent years, the group has relied heavily on direct sales at the expense of retailers. Particularly in the important US market, competing brands were able to take up shelf space from Nike in stores – and sales suffered as a result. The company is now struggling to repair relationships with its retail partners.
Things weren’t going so badly back home either. Overall group sales rose by one percent year-on-year to $12.4 billion in the past quarter, as the company announced the evening before in Beaverton (Oregon). Analysts on average had expected a decline. But in the end it didn’t work. The US group continues to have problems in China and with its Converse brand. Converse sales fell by 30 percent, those in China by 17 percent.
Analysts disappointed
China and direct sales in its own shops and over the Internet were disappointing, said expert Poonam Goyal from the analysis service Bloomberg Intelligence. In China, Nike says it is struggling with declining foot traffic in stores and is also having difficulty selling off inventory.
RBC expert Piral Dadhania judged that the tone taken by management was more cautious than expected. He complained that there was no sign of a significant improvement in sales growth and gross margin for the third quarter compared to the previous quarter, which supports a negative short-term outlook for the US group’s shares. “Nike appears to be still in the transition phase of its turnaround process, with recovery likely to be slower than expected,” he added.
Others see it that way too. A slight decline in sales was forecast for the third quarter compared to the same period last year, while the market expectation was an increase of 1.5 percent, said JPMorgan.
Trump tariffs hit Nike
In addition, US President Donald Trump’s tariffs are also weighing on the company. The gross margin – i.e. the ratio of what remains of the sales prices after production costs – fell by 3 percentage points to 40.6 percent. Nike blamed import duties in North America for this. The bottom line is that profits fell by almost a third to $792 million, also because Nike spent more money on marketing.
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BEAVERTON (dpa-AFX)
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