By Ananya Mariam Rajesh and Nicholas P. Brown
(Reuters) -Nike on Thursday forecast a steeper drop in fourth-quarter revenue than analysts had expected, striking a cautious tone as it works to rekindle interest among consumers who have defected to trendier rivals.
Shares of the leading shoe and apparel brand dropped in after-hours trade following Nike’s third-quarter earnings call, in which Chief Financial Officer Matthew Friend said he expects fourth-quarter revenue to decline in the mid-teens percentage range. That would exceed analyst expectations for a 12.22% decline to $11.07 billion, according to data compiled by LSEG.
Earlier, Nike reported third-quarter results that beat expectations on a promising consumer response to new shoe launches like the Pegasus Pro and Vomero 18. Revenue in China, though, was down 17%, which worried investors.
Shares of the Air Jordan maker rose immediately following the earnings report but then reversed course after the forecast, falling nearly 5% from $71.86 at the close.
The newly launched sneakers, fast-tracked by new CEO Elliott Hill, have performed well enough to give Nike some breathing room after several quarters of weak demand.
But next quarter may look bleak, Friend said, as the company discounts old items in an effort to clear old inventory, and continues to rebuild relationships with retailers. Revenues “will begin to moderate” after the fourth quarter, Friend said.
Overall revenues were down 9% to $11.27 billion, with diluted earnings per share falling 30% to 54 cents. The results beat Wall Street expectations of an 11.5% revenue drop to $11.01 billion, and a 62.2% dive in earnings per share, according to data compiled by LSEG.
China remained a particular drag. Demand in the region suffers from concerns over job and wage security and a prolonged property slump.
“Sport is growing in China and we must accelerate our pace” there, Friend said on the call.
Morningstar analyst David Swartz said that while overall results beat Wall Street expectations, “There’s no way to ignore [China], and sales in Europe are not looking so great either.”
‘WIN NOW’
Hill took the helm in October to lead a turnaround at a company that has lately struggled to design new, innovative shoes.
With rivals On and Hoka retaining their freshness in the eyes of consumers, analysts and investors heading into the quarter had anticipated that Nike’s turnaround will take a few more quarters.
In the call, Hill outlined what he called Nike’s “Win Now” strategy, a five-pillared plan that includes building out a broad swath of new shoe products and boosting its ground game in five key cities: Shanghai, Beijing, Los Angeles, New York and London.
