Nike Stock Plunges 20% After Disappointing Sales Forecast
In a massive blow to the sportswear giant, Nike’s stock (NKE) suffered its worst day ever on Friday, plummeting 20% after the company issued a forecast for a surprise drop in annual sales. This staggering loss wiped out a staggering $28.41 billion from Nike’s market valuation.
Missed Expectations Lead to Market Downturn
The company’s disappointing projection, which calls for a mid-single-digit percentage decline in fiscal 2025 revenue, fell far short of analyst expectations, who had predicted a near 1% rise. Experts believe Nike is adopting an ultra-conservative approach, aiming to underpromise and potentially overdeliver. “They’re setting the bar low for themselves,” said Art Hogan, chief market strategist at B Riley Wealth.
The ripple effects of Nike’s woes extended beyond its own stock price. Shares of rival sportswear companies and retailers across Europe, the UK, and the US also took a tumble on Friday. British retailer JD Sports fell 5.4%, while Germany’s Puma dipped 1%. Adidas, however, managed a marginal gain.
This latest development underscores the ongoing challenges Nike faces. The company has been steadily losing market share in the sports footwear category, with its US dominance slipping from 35.37% in 2022 to 34.97% in 2023. Meanwhile, upstart brands like Hoka, On, and Asics have been steadily encroaching on Nike’s territory, collectively capturing 35% of the global market share in 2023, compared to just 20% a decade prior.
To combat declining sales, Nike has implemented a two-pronged strategy. Firstly, they’ve cut back on oversaturated brands like the Air Force 1, which is part of a broader $2 billion cost-cutting plan. Secondly, they’re revamping their product line to cater to price-conscious consumers, with plans to roll out new sneakers priced under $100 in various markets. Additionally, Nike is focusing on sustainability by introducing an Air Max version and Pegasus 41 featuring a ReactX full-length foam midsole.
Management Under Scrutiny: Will There Be a Shakeup?
While analysts acknowledge Nike’s size and scale as a long-term advantage, the pressure is now on management to deliver. “The burden of proof is on management execution at this point,” stated BMO Capital Markets analyst Simeon Siegel.
Nike’s recent struggles have fueled speculation about a potential leadership shakeup, particularly with the company’s investor day approaching this fall. “In retail, two bad quarters typically lead to an exit,” noted Jessica Ramirez, senior analyst at Jane Hali & Associates. She believes a leadership change is “very much needed.”
Despite the turmoil, Nike co-founder Phil Knight expressed unwavering support for CEO John Donahoe, who is currently in his fourth year at the helm. Knight highlighted his confidence in Donahoe’s vision and future plans for the company.
However, Wall Street hasn’t been as forgiving. At least six brokerages downgraded the stock, and 15 analysts lowered their price targets.
Only time will tell if Nike can weather this storm and regain its footing in the competitive sportswear market.
