Q1 2025 Summary
Published Jan 10, 2025, 5:10 PM UTC- Nike is experiencing strong momentum in its Running category, with double-digit growth expected in men's and women's Running footwear units for the spring season, indicating successful re-engagement with runners and optimism for continued growth.
- In Greater China, despite short-term challenges, Nike's top innovations like Pegasus 41, Alphafly 3, Sabrina 2, and Kobe products are resonating with consumers, contributing to optimism about long-term opportunities for sport and for Nike in China.
- Nike is rebuilding strong relationships with wholesale partners, investing together to elevate and differentiate the brand at retail, which is expected to drive growth across the marketplace and enhance profitability.
- Nike's future revenue growth is under pressure due to lower-than-expected order books, with spring '25 order books coming in roughly flat versus the prior year, which was "a little lighter than we had planned."
- Challenges in the Greater China market are impacting Nike's performance, with traffic softness across all channels, elevated inventory levels, and a promotional environment leading to higher markdowns.
- Nike expects gross margins to decline approximately 150 basis points in Q2, due to higher promotions, channel mix headwinds, and supply chain deleverage, which may negatively impact profitability.
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China Sales and Inventory
Q: What's happening with Nike's business in China?
A: Nike experienced soft traffic across all channels in China this quarter. The marketplace was promotional, and despite improvements in full-price realization over past seasons, they needed to be more aggressive in promotions due to traffic trends. Wholesale revenue in China was up 10% in Q1, partly due to shipping timing, but retail sales didn't grow at the same rate. They're proactively managing inventories and order books, offering margin assistance to partners to move excess inventory, and focusing on newness and innovation in the second half. Top innovations like Pegasus 41 and Alphafly 3 performed well, and classics like Jordan show strong demand. Long term, Nike is optimistic about China's potential, with sport participation on the rise. -
Margin Outlook and Franchise Reset
Q: How is the franchise reset affecting margins?
A: Nike is reducing its concentration in classic styles, creating a mid-single-digit revenue headwind expected to continue this year. These classics have attractive margins, especially when sold digitally. The reset leads to a temporary margin headwind, particularly in digital channels, as they rightsize the portfolio. Moving forward, classics remain important, but the focus is on accelerating newness and innovation to drive consumer momentum. -
Inventory in China and North America
Q: Can you break down regional inventory levels?
A: Retail sales have underperformed plans recently, leading to slightly elevated inventory in China and North America. While retail sales grew in both regions in Q1, inventories increased due to falling short of sales plans. Nike has adopted a more muted view on retail sales trends and expects to be more promotional to work through inventory while scaling new ideas and concepts. -
DTC Margins and Investments
Q: Are DTC investments leverageable for margin growth?
A: Nike continues to see opportunities to run its Direct business more profitably. They've invested for growth and met consumer demand in these channels. Opportunities include a higher mix of full-price product in Direct channels and leveraging supply chain capabilities built for DTC. The focus is on driving balanced growth across the entire marketplace, improving profitability in both Direct and Wholesale channels. -
Wholesale Partners' Receptivity
Q: How are wholesale partners responding to new launches?
A: Nike is building encouraging momentum with wholesale partners. They are investing with partners to elevate and differentiate the brand at retail. Initiatives include testing women's fitness concepts with DICK'S and bringing new energy to basketball with Foot Locker. Partners are leaning in to reignite growth on the wholesale side. -
Running Category Performance
Q: What's the outlook for regaining share in Running?
A: Nike acknowledges lost market share in the Running specialty channel after pulling back over four years ago. Reinvesting in this channel is crucial for connecting with runners. Indicators show building momentum, and Nike is excited about the pipeline of products coming, which will extend innovations into lifestyle segments. -
Spring Order Books and Outlook
Q: How does lower spring orders reconcile with second-half optimism?
A: Spring order books came in flat versus the prior year, slightly below expectations. However, newness and innovation are scaling in the second half, with footwear units of new products growing mid- to high single digits, especially in spring. Running shows strong momentum; women's running footwear was up, the first positive growth in several quarters. Men's and women's Running footwear orders are growing double digits for spring.