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China Market · Inventory · Nike · Sales Forecast
Nike's shares dropped over 9% in extended trading after the company forecast a surprise 2% to 4% decline in fourth-quarter sales, significantly missing Wall Street's expectation of a 1.9% rise, primarily due to persistent weakness in China and slow inventory clearance.
CEO Elliott Hill's turnaround efforts, focusing on product innovation and core franchises, have not yet yielded results. In China, Nike's second-largest market accounting for 15% of annual sales, sales fell 10% in Q3 and are projected to drop 20% in Q4, impacted by operational missteps, fierce domestic competition from Anta and Li Ning, and weaker product assortments.
CFO Matt Friend also indicated excess inventory at the end of Q4. Despite these challenges, third-quarter revenue was flat at $11.28 billion, slightly above analysts' estimates of $11.24 billion, and Nike beat EPS estimates with 35 cents per share versus 28 cents.
Wholesale revenue increased 5% to $6.5 billion, supported by stable North American sales, but direct-to-customer sales declined 4% due to muted demand in Europe and China. Gross profit margin contracted for the sixth consecutive quarter, falling 130 basis points to 40.2%, mainly due to tariffs.
Analyst David Swartz of Morningstar states that the weak stock price indicates investors are losing confidence in CEO Hill's turnaround, which he admitted is taking longer than expected.
