After a poor quarter and a class action lawsuit, Nike is praying for victory at the Olympic Games in Paris

Nike ended June battered and bruised. It just reported that fiscal fourth-quarter revenue through May 31 fell 2% to $12.6 billion, and Nike Direct revenue fell 8% to $5.1 billion. It ended the year up 1% to $51.4 billion after reaching $51.2 billion in fiscal 2023 with 10% growth and a 5% increase in the fourth quarter to $12.8 billion.

As the company faces a product cycle transition and channel mix shift, it expects first-quarter fiscal 2025 revenue to decline by mid-single digits and to be in the high-single digits in the first half.

Nike also faced a securities fraud class action lawsuit in U.S. District Court in Oregon for misleading investors about the success of its Consumer Direct strategy.

The results were predictable on Wall Street, with the company’s shares falling 23% in the last week of the month, starting Monday at $97.36 a share and ending Friday at $75.37. According to Marketwatch, this is the company’s biggest decline in over 20 years.

In a research note, UBS analyst Jay Sole said: “Our key takeaway is that Nike’s earnings will not see a quick rebound. We believe Nike is embarking on a multi-year business reset to return to healthy revenue growth.”

Stifel analyst Jim Duffy shared the same view, but was even more emphatic. “Management credibility is at significant risk and a potential C-level regime change adds further uncertainty,” according to Marketwatch.

The Paris Olympics are calling

Despite the company’s very poor outlook, there is still hope at Nike’s headquarters in Beaverton, Oregon.

“The Paris Olympic Games is the most important moment for us to convey our vision for sports to the world,” Donahoe said in a recent earnings interview.

“We can’t wait to see all of these Olympic products rolled out throughout the Games and into over 8,000 doors around the world. At all times, our brand story will be bold and clear, with sport and athletes at the heart of everything from brand voice to retail activations,” he added.

However, the big question is how this leader in the sportswear market allowed itself to fall into such disrepair.

“Compared to a market that is growing steadily, and compared to rivals, many of whom are growing sales at a rapid pace, Nike looks slow and clumsy,” Neil Saunders of GlobalData told Retail Dive.

Nike has no chance of entering the Olympic stadium in Paris after such a slow and inefficient performance.

First quarter bad, worse in the future

Recognizing that the company is facing mounting headwinds – “We are taking on our near-term challenges without hesitation,” Donohue said in a statement – the quarter was not a total loss.

Net income increased 45% to $1.5 billion. This was largely due to significant budget cuts announced in December, which included a 2% job cut that affected approximately 1,600 employees. Selling and general administrative expenses decreased by 7% and sales costs by 4%.

Other positive signs this quarter include wholesale revenues increasing 5% to $7.1 billion. The company’s performance products grew by double digits, driven by double-digit growth in basketball.

However, the competitive running category is still a work in progress as it faces competition from emerging brands such as On Running, which grew 21% last quarter, and Deckers-owned Hoka, which grew 34%.

These gains in profits, wholesale and performance products couldn’t offset the bad news. Sales of Nike lifestyle products declined, which Donohue said had the strongest impact on poor digital performance.

Footwear, which accounts for 68% of the company’s revenue, fell 4% in the quarter to $8.2 billion. Sales also fell in its two largest markets. North America fell 1% to $5.3 billion, while Europe, the Middle East and Africa fell 2% to $3.3 billion.

The newness fails

Looking ahead, the company has committed to greater innovation and newness that will scale throughout fiscal year 2025. Donohue described the playbook to “put sports back at the center of everything we do – serving athletes.” But two recent high-profile defeats show that newness isn’t always what athletes want.

Earlier this season, Major League Baseball players rebelled against new uniforms provided by the company, saying the color of gray jerseys and pants, see-through pants, and materials that change when players sweat do not match. The company took full responsibility and promised to correct its mistakes during the 2025 MLB season.

“In essence, Nike introduced an innovation that did not require innovation,” the company admitted in a memo to MLB, reported by the AP.

In addition, a bodysuit designed for the United States women’s Olympic track and field team has been criticized for being unsuitable for high-performance performance, unlike the men’s unitard design, which is better suited for the track. The women’s bodysuit features a high-cut leg that barely covers a woman’s private parts, requiring the athlete to tug and pull to ensure that she remains discreetly covered.

The company has championed the design as one of nearly 50 styles athletes can choose from, but that casts a negative light on Nike for not being in touch with female athletes, something it can’t afford to do.

“Women’s clothing should be about performance, mentally and physically. If this clothing actually improved physical performance, men would be wearing it,” U.S. distance running champion Lauren Fleshman wrote on Instagram.

Better Come

Nike ended fiscal 2024 on a high and promised to do better. “For Nike, fiscal 24 was a key year to get back on the offensive in sports with consumers,” the CFO said
VictoryShares US 500 Enhanced Volatility Wtd ETF
said Matthew Friend during the earnings conference call.

“We faced several headwinds this quarter that we expect will have a more pronounced impact in fiscal 2025. While the coming quarters will be challenging, we are confident that we are repositioning Nike to be more competitive, with a more balanced portfolio to drive sustainable, profitable long-term growth,” he continued.

The class action lawsuit claims investors were defrauded

Another blow to the company came just before the announcement of its financial results. The City of Pembrook Pines Firefighters and Police Officers Retirement Fund has filed a securities fraud class action lawsuit and invited investors who purchased shares of Nike Class B common stock between March 19, 2021 and March 21, 2024 to join.

The lawsuit alleges that the company misled investors about the success of its Consumer Direct strategy, launched in 2020, which involved cutting wholesale accounts and building a DTC model online and in its own stores.

There was a sudden withdrawal of many existing accounts, including Foot Locker. This decision was widely questioned at the time and proved to be shortsighted, as it gave competitors an open invitation to fill the gap.

While the company began to reverse course in 2023, the damage had been done. “That withdrawal opened the door for those retailers to work more closely with other brands. While Nike is rebuilding those relationships now, it still suffers from the exposure it essentially gave other brands,” GlobalData’s Saunders told Retail Dive.

The class action lawsuit alleges:

1. NIKE’s direct-to-consumer strategy failed to generate sustainable revenue growth;
2. NIKE’s purported competitive advantages were unable to protect it from intense competitive pressures after NIKE largely withdrew from many of its wholesale and retail partners to focus on its direct-to-consumer sales strategy;
3. As a result, defendants’ statements regarding the Company’s business, operations and prospects were materially false and misleading and/or lacked a reasonable basis.

While no business strategy is foolproof and a company cannot be held legally liable for its failures, lying and deceiving investors may find it to be in violation of federal securities laws.

During the earnings conference call, the company did not answer any analyst questions about the lawsuit or respond to my request for comment.

Work to be completed

The company has made a number of changes throughout fiscal 2024 that have so far yielded little results. In addition to budget cuts and attempts to reconnect with retail partners—Nike’s wholesale revenue fell from 68% in fiscal 2019 to 57% in 2024—the year saw a major shakeup in leadership.

The new Jordan brand president joins the company as the current president becomes president of localization and markets, a new chief technology officer is appointed, and other senior management roles and responsibilities are expanded and reshuffled.

Given the brand’s exposure and storytelling opportunities at the Paris Olympics and the launch of Olympic products in more than 8,000 retail stores worldwide, the company’s restrained revenue growth forecasts for the rest of the year belie this optimism. Or maybe it’s just an easy way for the company to score points in upcoming earnings calls.

Either way, CEO Donohue is energized for the upcoming quarter:

“This summer, we’re going to cut through the clutter to create a powerful energy for the Nike brand. We’re back to doing what we do best: creating compelling storytelling and ultimately differentiating the brand in sports. We’re finally meeting our challenges and regaining our advantage,” he said, summing up his prepared remarks on the earnings call.