Nike's stock faced a considerable downturn on Friday, triggered by a cautious financial outlook and persistent sales obstacles in the Chinese market, even as the company reported stronger-than-expected quarterly profits and revenue.
Shares of the athletic wear behemoth plummeted by nearly 10% to approximately $59, positioning Nike among the poorest performers in the S&P 500 on Friday, a day when broader market indices generally saw gains. The company's earnings per share for the fiscal second quarter reached $0.53, comfortably surpassing the Visible Alpha analyst consensus of $0.38. Revenue also demonstrated growth, rising 1% year-over-year to $12.4 billion, exceeding initial projections. This positive revenue trend was primarily fueled by a strong 9% increase in North American sales. However, this was significantly undermined by a substantial 17% decrease in sales within China, with footwear sales in the region specifically dropping by 21%.
CFO Matt Friend indicated during Thursday's earnings call that the company foresees continued sales challenges in China throughout the remainder of the fiscal year before a projected return to growth. Friend's statement revealed expectations for a low-single-digit decline in third-quarter revenue, a stark contrast to analysts' predictions of growth, as North American gains are expected to be offset by ongoing weakness in the Chinese market.
CEO Elliott Hill articulated that Nike is currently midway through its revitalization strategy, which he unveiled about a year ago following his assumption of the CEO role. This strategy focuses on reducing promotional activities and re-emphasizing the development of innovative products to attract consumers. Analysts at Bank of America, while maintaining a 'buy' rating and acknowledging the progress of Nike's turnaround plan, expressed disappointment regarding the results from China. They adjusted their price target for the stock downward from $73 to $84.
The significant decline in Nike's stock on Friday, marking its largest single-day loss since President Donald Trump's "Liberation Day" tariffs announcement in April, signals that investors were hoping for more definitive signs of recovery and improvement. This reaction underscores the market's sensitivity to international sales performance and future growth projections, particularly in critical markets like China.
Nike's recent financial performance highlights the intricate balance between domestic success and international market volatility. Despite outperforming profit and revenue expectations in its second fiscal quarter, the sportswear giant's shares dropped substantially due to a conservative outlook and persistent difficulties in the Chinese market. The strong sales growth observed in North America was overshadowed by a significant decline in China, signaling that the company's turnaround efforts face considerable hurdles in key international territories. Investors are closely scrutinizing Nike's ability to navigate these global economic shifts and adapt its strategies for sustained growth.