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The light at the end of the tunnel for Nike may be further away than initially thought.
Sneaker giant Nike on Thursday lowered its fiscal 2025 outlook after reporting weaker-than-expected fourth-quarter sales. Given current challenges, including declining lifestyle sales, foreign exchange headwinds and macroeconomic uncertainty, Nike now expects fiscal 2025 revenue to decline by a mid-single digit and first-half revenue to decline by a high-single digit. First-quarter sales are expected to decline 10%, reflecting weak wholesale orders, a softer outlook for China and other factors.
As of 11:30 a.m. Friday, the stock was down more than 19%.
Nike CEO John Donahoe said in a conference call with analysts on Thursday that fiscal 2025 will be a “year of transition” for the company, reassuring the market that the footwear giant’s recovery won’t happen overnight and things will likely get worse before they get better.
Analysts say it’s unclear whether Nike can even meet its revised guidance as it tries to overcome slow innovation in key areas like running and growing competition from other brands.
“Nike has been in a complete mess and has lost any credibility we had,” Sam Poser, an analyst at Williams Trading, wrote in a note to investors on Thursday. “The biggest problem is that fiscal 2025 guidance likely does not reflect the worst-case scenario.”
Pozer said Nike is likely moving too quickly from DTC channels to wholesale, which could result in saturation of the market, increased promotional activity and damage to its brand value.
“We believe Nike is not as great a company as it was pre-2020, and despite management’s claims, it doesn’t appear to be heading in the right direction,” Poser said. “We remain unconvinced that Nike has the team in place to become a growth company again.”
Morgan Stanley analysts led by Alex Stratton expressed similar disappointment in a report downgrading Nike shares to equal weight from overweight. They wrote that even Nike’s lowered full-year guidance “may not be achievable,” and that risks to earnings could increase further down the road.
“Recent volatility continues, and we believe Nike’s long-term growth and profitability trajectory remains uncertain and below prior expectations,” the analysts wrote.
UBS analyst Jay Sohl also expressed skepticism in a note to investors on Friday, saying a full recovery for Nike could take years.
“Nike’s fourth-quarter report showed that the company’s fundamental trends are much worse than we realized,” Sohl wrote. “Our key conclusion is that Nike’s earnings aren’t going to recover anytime soon. We believe Nike is embarking on a multiyear restructuring of its business to return to healthy sales growth rates.”
Not everyone in the market felt the outlook was so bleak. Wedbush analyst Tom Nikic maintained an outperform rating on Nike in a Thursday note, predicting that “Nike will eventually ‘find a solution.'” But he added that “our belief in our thesis has certainly taken a hit.”