LONDON: Nike’s forecast of a surprise drop in fourth-quarter (4Q) sales has sent its shares down more than 9% in extended trading, as persistent weakness in China and slow progress in clearing older inventory hamper turnaround efforts.
Under chief executive officer Elliott Hill, Nike has pulled back promotions, stepped up product innovation and refocused on core franchises like running, as it tries to reset the business after years of excess inventory and uneven demand across North America and China.
But the turnaround “is taking longer than I would like,” Hill said on Nike’s 3Q earnings call.
Chief financial officer Matt Friend projected a 2% to 4% drop in current-quarter sales, compared with Wall Street estimates of a 1.9% rise, according to data compiled by LSEG.
In China, where operational missteps have collided with fierce domestic competition, Nike’s sales fell 10%.
Friend said Nike made “forward progress” in the region, as running grew double-digits. The decline was an improvement over last quarter’s 16% drop in China.
Yet, Friend warned that the improvement may not be linear. The company is reducing selling in China as it works through a backlog of old inventory, and expects China sales to fall a staggering 20% next quarter, Friend said.
Greater China is Nike’s third-largest market, after North America and Europe, the Middle East and Africa, and it accounts for 15% of annual sales. But it’s been a slog in recent quarters, due to a combination of weaker product assortments and share losses to local competitors Anta and Li Ning.
As Nike tries to clear out old stock across the globe, it’s marking down items, which squeezes margins. In its European market, “promotions across the marketplace were up versus the prior year,” and “we were also more aggressive with promotions on Nike digital,” Friend said. — Reuters
