By Ananya Mariam Rajesh and Nicholas P. Brown
(Reuters) – Nike offered a muted forecast on Thursday, reversing gains in its shares made earlier in the day after the embattled sportswear seller’s quarterly results beat estimates.
The Beaverton, Oregon-based sportswear company, which has been scrambling to regain market dominance in the face of intensifying competition, predicted revenue would fall by low double-digits in the third quarter.
Analysts, on average, had expected revenue to fall 7.65% to $11.48 billion for the current quarter, according to data compiled by LSEG.
New CEO Elliott Hill said Nike’s efforts to regain lost market share would mean some short-term pain. The company had “lost its obsession with sport,” he said in his first earnings call since taking the helm in October.
Hill vowed to put Nike back on track by refocusing its business on sport and selling more items at premium prices, but added “the shift’s gonna take time.”
Earlier in the day, Nike reported earnings per share of 78 cents, compared with estimates of 63 cents per share, according to analysts’ estimates compiled by LSEG.
Second-quarter net revenue fell 7.7% to $12.35 billion, less than the 9.41% fall analysts had expected, as newer versions of performance and running shoes attracted shoppers.
Shares surged 11% immediately after the earnings report but gave up those gains after Hill and CFO Matthew Friend reined in expectations.
Shares were last down about 0.5% in aftermarket trading. So far this year, Nike shares have slumped nearly 30%.
“If you really look at (second quarter earnings), the numbers are not good. … but it’s better than most people feared,” said Jane Hali & Associates senior analyst Jessica Ramirez.
‘FAR TOO PROMOTIONAL’
Hill, who began at Nike as an intern in 1988, said on the call he was prioritizing rebuilding Nike’s retail partnerships, and ensuring that discounts and promotions are curtailed.
“We’ve become far too promotional,” he said. “The level of markdowns not only impacts our brand but disrupts the overall marketplace and the profits of our partners.”
Hill said he has met with many of the company’s key retail partners since assuming his new role. Retailers such as Foot Locker have expressed confidence in his leadership and his ability to reignite partnerships.
A key pillar of Nike’s turnaround plan, he said, is reinvestment in on-the-ground teams in major cities and countries. “They’re the ones creating the emotional consumer connections” Nike will need to flourish, Hill said.
With rivals launching more comfortable, better cushioned shoes, Nike has been fighting back, shelling out money to introduce new products such as Air Max 95 and to promote staple franchises such as Jordans and Pegasus to attract customers.
Last month, the company announced it would double down on three running franchises – Pegasus, Structure and Vomero – by launching various iterations of each shoe next year, at different price points.
Hill said on Thursday that other initial focuses for investment would include football, basketball, training and sportswear. (This story has been refiled to correct the spelling of the CEO’s first name to ‘Elliott’ from ‘Elliot,’ in paragraph 4)
(Reporting by Ananya Mariam Rajesh in Bengaluru and Nicholas P. Brown in New York; Editing by David Gregorio, Pooja Desai and Muralikumar Anantharaman)
