Nike (NYSE: NKE) shares fell more than 6% in pre-market trading Friday after the company issued a weak fourth-quarter revenue forecast, overshadowing a stronger-than-expected Q3 earnings report. While Nike briefly enjoyed a post-earnings boost, concerns over continued revenue declines, challenges in China, and pricing pressures quickly erased investor optimism.
Q3 Earnings Beat, but Revenue Still Declining
Nike’s third-quarter revenue came in at $11.27 billion, a 9% decline year-over-year. However, this was better than analysts’ expectations of an 11.5% drop to $11.01 billion, according to LSEG data.
Earnings per share fell 30% to 54 cents, but again, this was far better than the 62.2% decline analysts had predicted. The earnings surprise came largely from strong demand for new product launches, such as the Pegasus Pro and Vomero 18 sneakers, which were fast-tracked under new CEO Elliott Hill’s leadership.
Nike (NYSE: NKE) shares initially rallied on the earnings beat, but that optimism quickly faded when the company provided its fourth-quarter outlook.
Q4 Outlook Sends Shares Lower
During the third-quarter earnings call, Chief Financial Officer Matthew Friend projected a mid-teens percentage revenue decline for the fourth quarter, steeper than the 12.22% drop to $11.07 billion that analysts had expected, according to LSEG data.
The decline is largely due to Nike clearing excess inventory through heavy discounting while also working to repair relationships with retailers who had been sidelined under the company’s previous direct-to-consumer strategy.
While Friend assured investors that “revenue declines will begin to moderate” after the fourth quarter, the weaker guidance sent shares tumbling in after-hours trading.
China Continues to Weigh on Growth
Nike’s (NYSE: NKE) challenges extend beyond North America. Revenue in Greater China fell 17% in Q3, marking a sharp decline in one of its most important growth markets. The company cited consumer concerns over job security, wage stagnation, and a prolonged property slump as key factors dragging down demand.
While local competitors like Anta and Li-Ning continue to gain market share, Friend remained optimistic, stating that “sport is growing in China” and emphasizing the need to “accelerate our pace there” to regain momentum.
Strategic Shifts Under New CEO Elliott Hill
Nike’s leadership shift in October 2024 brought in Elliott Hill as CEO, marking a strategic pivot from the direct-to-consumer approach championed by former CEO John Donahoe.
Hill is focused on rebuilding relationships with retailers who had been alienated by Nike’s previous strategy. He’s also placing a renewed emphasis on marketing and brand visibility—a move that included Nike’s first Super Bowl ad in 27 years, featuring stars like Caitlin Clark to capitalize on growing interest in women’s basketball.
However, despite these efforts, margin pressures persist. Nike’s gross margin dropped 330 basis points to 41.5% in Q3, weighed down by higher markdowns, excess inventory, and rising production costs.
To clear old stock and make room for new innovations, the company discounted legacy models like the Air Jordan 1, Air Force 1, and Dunk—a necessary but painful move that squeezed profitability.
Analyst Reactions and Future Outlook
Despite the positive surprise in third-quarter earnings, analysts are cautiously optimistic about Nike’s future.
Morningstar analyst David Swartz noted that while Q3 results beat expectations, “you can’t ignore” the concerning performance in China, which could slow Nike’s overall recovery.
However, some analysts, like Ramiz Chelat, a portfolio manager at Vontobel and a Nike (NYSE: NKE) investor, are more optimistic. Chelat pointed out that the success of new products, such as the recent shoe launches, gives hope for future growth. “I think the potential positive surprise here is that the new product is hitting the mark,” he said.
