Nike shares falter as weak forecast alarms investors

Nike shares slipped 11% on Friday, a day after the sportswear giant cut its annual revenue forecast and laid out a $2bn cost-saving plan, signalling a strategy shift in favour of growing profit over sales as consumer spending remained weak.

Nike on Thursday blamed cautious consumer spending, a weaker online business and more promotions for the weak forecast and said it plans to cut supplies of key product lines to manage costs.

The forecast sent shares of rivals Adidas and Puma down about 5% each, and those of footwear retailer Foot Locker 6% lower.

“This ‘margins before sales’ theme is not new across the entire US retail and wholesale sectors. As companies clean up inventory in a tough macro backdrop, it has been the norm to guide for a weaker top-line offset by stronger margins and cost-cutting,” Barclays analyst Adrienne Yih said in a note.

As part of its streamlining efforts, Nike said it plans to simplify its product assortment, increase automation, and launch fresher styles to attract consumers.

“While we think this (cost saving plan) is a positive shift, it will take time to scale newness and innovation, and a soft macro will further pressure results in the meantime,” Piper Sandler’s Abbie Zvejnieks said. The brokerage cut its price target to $107 from $112.

Nike’s caution about weaker consumer spending in the face of persistently high inflation was echoed by several other retailers, including Walmart and Target. Nike’s CFO said the company was adopting a “more prudent approach” to planning for the rest of the year.

Main rival, Adidas, undergoing a turnaround after its separation from rapper Kanye West, reported last month an increasing interest in its products, but noted that the current performance was still “not good enough.”

Nike’s forward price-to-earnings ratio for the next 12 months, a common benchmark for valuing stocks, was 30.01, compared with Adidas’ 44.48.

Reuters