Nike's Rare Sales Decline Expected as Company Shifts Focus to US Demand and Direct-to-Consumer Strategy

First Quarterly Revenue Decrease Expected for Nike in Almost Two Years: US Demand and Direct-to-Consumer Shift Implicated

Nike is expected to witness its first quarterly revenue slip in close to two years this coming Thursday, casting focus on its less successful than anticipated direct-to-customer (DTC) strategy, and a decline in demand in North America. The sports apparel giant has dedicated resources to increase sales via its own sales channels, like physical shops and online, rather than growing stock at wholesale retailers to support its profit margins.

Nevertheless, industry experts suggest the DTC initiative has not performed due to a lack of fresh innovation for the company's flagship sneakers, the creators of Air Jordan, and growing rivalry from emerging brands such as On and Decker's Hoka.

These brands are making a mark in the running shoes market space. David Swartz, an analyst from Morningstar, noted, 'If the products aren't popular, it doesn't matter where they're sold, people are not going to buy them,' He added that Nike's DTC approach is not delivering as well as the company would have hoped.

Nike's third-quarter revenue is forecasted to decrease nearly 1%, with at least five brokerages reducing their price targets ahead of the results due on Thursday afternoon. Its profit per share is anticipated to decrease by about 7% to 74 cents, as indicated by LSEG data.

Brian Mulberry, a client portfolio manager at Zacks Investment Management, stated that Nike wasn't investing a significant amount in innovation and the brand is becoming 'stale'. He suggested that this is clear from the way consumers prefer to spend their money on its products.

DTC revenue for Nike has stayed steady at about 42% of total sales in the past few quarters, with wholesale sales representing the majority of the remaining revenue.

However, the wholesale division, especially in the US, continues to encounter issues as wholesale sports clothing retailers cut down on orders due to irregular demand.

Last week, rival brand Adidas predicted that its North American sales would persist in declining as retailers continue to struggle with overstock. This came shortly after the German brand reported its first annual loss in over 30 years. Also, Foot Locker predicted earlier this month that its 2024 profits would drop short of forecasts due to expected rises in wider business investments.

Swartz from Morningstar articulated, 'The existing market is not very strong for sportswear and we've seen poor reports from a variety of companies including Adidas, Puma and Under Armour... The (outlook) for the industry for at least the next few quarters is not very promising.'

Nike's shares have witnessed a nearly 8% decrease since the year began, underperforming compared to the Dow Jones Index which has seen almost a 4% rise.