By Ananya Mariam Rajesh and Nicholas P. Brown
(Reuters) -Nike’s results beat modest estimates on Thursday and its shares jumped briefly, but the company soon dashed investor hopes and sent shares lower when a top executive predicted revenues would fall by double digits in the third quarter.
Nike (NYSE:NKE)’s new CEO Elliot Hill warned of short-term pain as the embattled sportswear seller works to revive tepid demand for its brands. Shares of Nike surged 11% immediately after the earnings report but gave up those gains after Hill and CFO Matthew Friend reined in expectations.
Hill said in his first earnings call since taking the helm in October that Nike “lost its obsession with sport,” vowing to right the ship by refocusing its business on sport and selling more items at premium prices.
Nike’s quarterly profit beat modest expectations. Revenue also fell less than expected as newer versions of performance and running shoes attracted shoppers.
So far this year, Nike shares have slumped nearly 30%. Analysts said Hill faces tough critics and a long slog to claw back lost market.
Hill told the call he was prioritizing rebuilding Nike’s retail partnerships, boosting innovation and ensuring discounts and promotions are limited to traditional retail moments, and not at the consistent rates at which they have been employed lately.
“We’ve become far too promotional,” Hill said, speaking in lively, impassioned tones. “The level of markdowns not only impacts our brand but disrupts the overall marketplace and the profits of our partners.”
With rivals launching more comfortable, better cushioned shoes, Nike has been scrambling to regain dominance in the market, shelling out money to introduce new products like Air Max 95, and to promote staple franchises like Jordans and Pegasus.
Last month, the company under Hill 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 has been popular with retailers, who are optimistic he’ll revive the third-party partnerships Nike backed away from in 2020, when it pivoted toward its direct-to-consumer business.
At the time, some retailers quickly filled shelf space with fashionable competitors like On and Hoka, but others struggled.
Foot Locker (NYSE:FL), for example, continued to rely heavily on Nike in 2022 and 2023, buying 65% of its sports apparel from the company.
It blamed weak demand for Nike shoes when it reported disappointing sales earlier this month. Foot Locker executives said at the time they were looking forward to working with Hill. Nike’s second-quarter net revenue fell 7.7% to $12.35 billion. Analysts had expected a 9.41% fall to $12.13 billion, according to estimates compiled by LSEG.
Nike reported earnings per share of 78 cents, compared with estimates of 63 cents per share, according to analysts estimates compiled by LSEG.
“If you really look at it, the numbers are not good,” said Jane Hali & Associates senior analyst Jessica Ramirez. “But it’s better than most people feared.”