Nike’s turnaround attempt is encountering obstacles as it attempts to get rid of outdated inventory while dealing with the consequences of an intensifying trade war.
Due to a continuous merchandise reset that the firm claims is required to revitalise growth, the sportswear manufacturer indicated significant drops in revenue and profitability. Due in part to US tariffs on goods from China and Mexico, Nike also anticipates a significant drop in gross margin in the current quarter compared to the same period last year.
In October, long-time Nike executive Elliott Hill came out of retirement to take over as CEO. After a challenging year marked by declining sales and corporate layoffs, Hill hopes to lead the firm back to growth. By putting more of an emphasis on sports and repairing ties with its retail partners, he is transforming Nike.
As demand declines for some of its most popular sneaker brands, such as the Air Force 1 and Dunks, Nike is currently clearing away outdated inventory at steep discounts. Despite a 2 per cent decline in inventory during that time, Chief Financial Officer Matt Friend stated that inventory levels are still “elevated across all categories.”
Against the backdrop of sluggish consumer spending and the consequences from President Donald Trump’s intensifying trade war, the corporation is attempting to turn things around. Amid a protracted consumer recession in the industry, China continued to be a weak point, with sales falling short of analyst projections. However, results were better than anticipated in North America and the region that includes Europe, Africa, and the Middle East.
Friend stated that “geopolitical dynamics, new tariffs, volatile foreign exchange rates, and tax regulations” are some of the issues causing concern during the company’s call with analysts. According to business estimates, 18 per cent of Nike-branded footwear was made in China in fiscal 2024. Nike has eight production facilities in Mexico and 117 in China.
In the upcoming fiscal year, Nike will experience a double-digit decline in digital traffic as it switches to a new product mix, according to Friend. The company’s fiscal third quarter ended 28th February saw revenue drop 9 per cent to US $ 11.3 billion, which was less than the 11 per cent decline Wall Street had forecast.
Hill laid forth a strategy in December to revitalise Nike by reorganising around divisions that specialise in sports like basketball, soccer, and running. Additionally, the business is shifting its marketing budget from clickbait digital advertisements to more engaging sports advertising. In the most recent quarter, its marketing expenditures increased by 8 per cent.
