Morning Note: Market news and an update from Nike.
Market News
Equity markets remain subdued, both in the US last night – S&P 500 (-0.2%); Nasdaq (-0.3%) – and in Asia this morning: Nikkei 225 (-0.2%); Hang Seng (-2.1%); Shanghai Composite (-1.3%).
Geopolitical risk remains elevated and the macroeconomic picture mixed. In the US, the strong rebound for existing home sales in February from storm-stalled January but that is countered by a third straight monthly decline in Leading Indicators. Rate cut expectations continue to rise with three cuts now more likely.
The FTSE 100 is currently 0.3% lower at 8,678, while Sterling trades at $1.2935 and €1.1940.
Gold drifted back to $3,034 an ounce. Brent Crude has risen to $72 a barrel. OPEC+ nations that exceeded oil output quotas have updated pledges for compensation cuts, potentially offsetting the group’s supply revival plan through to the end of 2026.
President Trump is invoking emergency powers to expand production of critical minerals — and potentially coal. Separately, the president said he will be signing a natural-resources deal with Ukraine very shortly. China plans to boost its strategic reserves of key industrial metals including cobalt, copper, and lithium this year to strengthen critical mineral supplies, people familiar said
Germany’s move to unlock massive defence and infrastructure spending is expected to pass its final legislative hurdle today. 10-year Bund yields continued to come off their recent highs – they are currently 2.76%.
Source: Bloomberg
Company News
Last night, Nike released results for the three months to 28 February, the third quarter of its financial year to end May 2025, which were slightly better than expected. The plan to return the business to growth is ongoing, but as expected the actions being taken are having a negative impact on the company’s near-term results. The results in the current quarter will reflect the largest impact from these actions, with revenue expected to be down in the mid-teens range, slightly below current market forecasts. In response, the shares fell by 5% after hours.
Nike is the world’s leading sports footwear and apparel company. We are positive on the long-term outlook for the business, with the company well placed to benefit from increased consumer demand for healthier living and the shift to personalised products. Nike has a very strong brand and an impressive track record of product innovation.
However, in the near-term, the group is faced with a number of challenges:
• the rebalancing of the business from a concentration on key product franchises (Air Force 1, Air Jordan 1, and Dunk) towards new products
• a subdued macroeconomic backdrop with continued promotional activity
• increased competition from new brands such as On and Deckers’ Hoka
• an admission that the company was too aggressive with its push with Nike Direct sales (in particular digital) at the expense of wholesale partners which are essential to elevate its brand and grow the total marketplace.
In response, former senior executive (and 32-year Nike veteran) Elliott Hill has returned to the company as CEO. Given much of the recent corporate malaise is down to management/strategy, the hope is that Nike will return to its roots and the culture that made it so successful. The plan is to ‘lead with sport and put the athlete at the centre of every decision, leveraging athlete insights to accelerate innovation, design, and product creation’.
The group has accelerated its multi-year cycle of innovation and pulled forward several new products, especially in high-volume areas like running, training, football, sportswear, and Jordan. During the latest quarter, the company launched running shoes Pegasus Premium and Vomero 18. Last month, the company also announced plans to launch a new women’s activewear brand in the US in partnership with Kim Kardashian-owned shapewear clothing company Skims. The brand, called NikeSKIMS, will include training apparel, footwear, and accessories for women.
The company is also shifting NIKE Digital to a full-price model and reducing the percentage of the business driven by promotional activity. The company is going to continue to be aggressive in sports marketing across leagues, associations, teams and individuals. In February, the company showed its first Super Bowl ad in 27 years.
Overall, immediate action has been taken in areas that will make the most near-term impact. However, the company admits change will take time and “turnaround efforts may hurt in short term”.
As a result, current trading is weak. In the three months to 28 February 2025, revenue fell by 7% on a currency-neutral basis to $11.3bn, better than the company guidance for a low double-digit decline and the market estimate of $11.0bn as the business benefitted from a good holiday season and an uptick in demand. Inventory still being cleared out for Air Force 1, Air Jordan 1, and Dunk as the marketplace is reset. However, Nike is already seeing a promising consumer response to new shoe launches like the Air Max Muse and Air Max 95.
Nike Brand sales were down 6% to $10.9bn, while the Converse brand fell by 16% to $405m. By region, Nike Brand revenue declined across all geographies: Asia Pacific & Latin America (APLA, -4%); Greater China (-15%); North America (-4%); and Europe, Middle East, & Africa (EMEA, -6%).
Nike Brand sales are split into Direct sales (both online and through Nike-owned stores) and wholesale revenue from third party retailers. During the quarter, Nike Direct sales fell by 10% to $4.7bn, with digital down 15% and stores down 2%. Wholesale fell by 4% to $6.2bn.
The gross margin fell by 330 basis points to 41.5%, in line with company guidance for a decline of 300-350 basis points. The fall was primarily due to higher discounts, high inventory obsolescence reserves, higher product cost, and changes in channel mix.
Selling and administrative expenses fell by 8%, with demand creation expense (i.e., marketing) up 8%, reflecting an increase in brand marketing expense. Operating overhead expense was down 13%, partly due to lower wage-related expenses. EPS declined by 30% to 54c. This was well above the market forecast of 29c, albeit helped by a one-off, non-cash deferred tax benefit. Stripping that out EPS would have been c. 48c.
Inventories remain elevated, although down 2% in the quarter to $7.5bn, reflecting product mix shifts, partly offset by an increase in units. The group’s balance sheet remains very strong – with net cash of c. $1.4bn. During the quarter, the group bought back $499m of its own stock as part of its 4-year $18bn share repurchase programme, while the quarterly dividend was raised by 8% to 40c, marking the 23rd consecutive year that Nike has increased its payout.
Given CEO transition, Nike is currently only providing quarterly guidance rather than annual guidance. Over the near term, the net effect of the company strategic actions will result in lower revenue, additional gross margin pressure and higher marketing expenses.
The group’s outlook for its second half remains consistent with what management communicated last quarter. In the current (fourth) quarter, the company still expects its metrics to deteriorate versus the previous quarter. On the analysts’ call, the company guided to Q4 revenue to be down in the mid-teens range, slightly worse than the market expectation for a 12% decline. The gross margin will fall by 400-500 basis points, reflecting the actions described above to clean and to reset the marketplace.
In terms of the timeline to full recovery, management have highlighted autumn 2025 as the first moment in which new product will be pulled through the marketplace. Annualisation of revenue and margin headwinds into H1 FY2026 (i.e. May to November 2025).
Source: Bloomberg
