(Bloomberg) -- Nike Inc.’s sales fell short of Wall Street’s expectations, underscoring the challenge that incoming Chief Executive Officer Elliott Hill will face when he takes the reins later this month.
Revenue in the fiscal first quarter declined 10% to $11.59 billion, just below the average of analyst estimates compiled by Bloomberg. Earnings per share were 70 cents in the period, Nike said in a statement, beating expectations.
The company also announced it’s postponing its investor day, which had been scheduled for November. That will give Hill more time to develop his turnaround strategy before presenting it to the market.
The shares fell 3.2% in late New York trading. The stock has declined 18% this year through Tuesday’s close, compared with a 20% gain for the S&P 500 Index.
Nike’s gross margin rose from a year earlier and beat estimates, with the retailer citing lower costs for products, warehousing and logistics. It noted that price adjustments taken last year also helped with profitability.
Revenue in Greater China outpaced expectations, and the 4% decline there was the smallest drop among the company’s regions.
The numbers likely won’t matter much to investors, who say the current quarter is a bit of a throwaway as they await the new CEO’s strategy.
“The idea here is that everyone understands that Nike stock now will be predicated on what Elliott does in the future, and that isn’t something that can be really addressed,” said Simeon Siegel, an analyst at BMO Capital Markets. “This is a picture of a reality we already know has been changed.”
Hill, a Nike veteran who started as an intern decades ago, is coming out of retirement to take the top job on Oct. 14. He replaces John Donahoe, who became CEO in 2020 when sales were soaring, but oversaw Nike during one of the most tumultuous years in the company’s half-century history.
Nike’s board selected Donahoe, the former eBay Inc. and Bain & Co. boss, for the top role with the hopes he would use his e-commerce expertise to transform the company into a digital powerhouse. He halted or reduced the flow of sneakers to more than half of the company’s retail partners, in favor of Nike’s own stores, websites and apps.
Under Donahoe, Nike hit its $50 billion revenue goal, boosted by rapid growth around its lifestyle sneakers, such as Dunks and Air Force 1s. But as demand for those products cooled last year, executives were left scrambling to find items to replace them in the face of growing competition from brands such as On, Hoka and Salomon, which quickly filled the shelf space in stores that Nike had vacated.
In December, Donahoe presented a plan to cut $2 billion in costs, including a 2% reduction of Nike’s workforce, which it rolled out in phases in the first half of the year. Then, in June, Nike had its worst day in the stock market since going public in 1980. Executives forecast at the time that sales would slide in the company’s current fiscal year. That ramped up investors’ pressure on Donahoe and his leadership team.
Slowing Development
Meanwhile, at Nike headquarters in Beaverton, Oregon, product development had slowed as the company dealt with pandemic crises and leaned on its existing lifestyle shoes. Executives have said they’re resetting the product pipeline with a three-year blitz that started ahead of the Olympic Games in Paris this year.
When Hill takes over as CEO, investors will be looking for answers on how he plans to rebuild those relationships with spurned retailers, retain staff who’d lost faith in the previous regime, and speed up innovation to bring new products to market.
“Expectations are very low. We know that business in North America is soft and China is not so good,” said David Swartz senior equity analyst for Morningstar. He predicted that the company’s fiscal first quarter “is going to be sort of the bottom in terms of sales declines, and it’s going to get a little bit better as we go through the fiscal year.”
(Updates share trading, adds details on China and gross margin, and adds context starting in seventh paragraph.)
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