Q4 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Nike is successfully executing its 'comeback plan', including organizational alignment along sport lines, acceleration of its innovation pipeline, and emphasis on speed as a key capability, leading to increased confidence in future growth.
- Strong upcoming product pipeline with several innovations being launched and pulled forward, such as the Peg Premium and Vomero 18, expected to drive growth, with positive feedback from wholesale partners and strong order books for holiday '24 and spring '25.
- Performance segment grew double digits in the quarter, showing strength in key product categories, and new products like the Pegasus 41 are selling well across wholesale and Nike Direct channels.
- Nike is experiencing underperformance of its largest classic footwear franchises, particularly in NIKE Digital, leading to aggressive management actions that will have a pronounced negative impact on fiscal '25 revenue.
- The company was surprised by the decline in these key franchises, which has led to a revision of their fiscal '25 guidance, indicating potential challenges in forecasting and managing their business.
- Nike's expected recovery relies heavily on scaling new products and innovations in the second half of fiscal '25, introducing uncertainty as success depends on unproven product launches and consumer adoption.
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FY '25 Outlook Revision
Q: What led to changes in NIKE's FY '25 outlook?
A: NIKE revised its FY '25 revenue outlook to down mid-single digits due to several factors. A stronger U.S. dollar impacted guidance by 1 point. A softened outlook for Greater China also affected the full-year guidance. Most significantly, more aggressive actions to manage key franchises, especially in NIKE Digital, compounded the impact on revenue. The lifestyle business saw a more pronounced decline in NIKE Digital during April and May, with trends continuing into June. These factors led to revising guidance from down low single digits to down mid-single digits for the full year. -
Franchise Management Impact
Q: How will managing key franchises affect financials?
A: NIKE's largest classic franchises have grown significantly due to consumer demand, but the company is intentionally reducing supply to maintain their health and make room for new innovations. This will impact FY '25 financials, particularly in revenue and margins. The adjustments are more aggressive in NIKE Direct and Digital channels, affecting the first half of the year. However, as new products scale up, NIKE expects to exit the year with momentum, with new innovations beginning to outweigh the declines from franchise management. -
Second Half Improvement Confidence
Q: What gives confidence in meaningful second-half improvements?
A: NIKE anticipates sequential improvement in the second half of FY '25 due to the scaling of new products like the Peg 41, Peg Premium, and Vomero 18. The order book for Air Max Dn and the next Air Max iteration is strong. Initial reads of the spring order book align with guidance, and wholesale partners have responded positively to the innovation pipeline. The company is confident that newness is on track and will drive growth in the latter half of the year. -
Gross Margin Expectations
Q: How are gross margins expected to trend in FY '25?
A: Despite headwinds, NIKE expects to expand gross margins by 10 to 30 basis points in FY '25. While channel mix shifts—specifically a move back towards wholesale—will be a headwind due to lower margins compared to direct channels, the company anticipates mitigating factors like lower input costs and strategic pricing. Additionally, they face about 15 basis points of foreign exchange headwinds but still project margin expansion. -
Channel Shift Impacts
Q: What are the impacts of channel shifts on revenue and margins?
A: The shift from direct to wholesale channels will create headwinds on both revenue and margins in FY '25. Products sold through wholesale generally have lower margins than direct channels. Additionally, managing supply of key franchises in NIKE Digital will impact revenue. However, NIKE is embracing a balanced marketplace approach, aiming to be where the consumer is—whether that's digital, their own stores, or wholesale—driven by consumer demand. Over time, channel mix should stabilize, reflecting consumer shopping preferences. -
Long-Term Growth Outlook
Q: What is the long-term growth opportunity for NIKE?
A: NIKE remains focused on driving unit growth across all channels, aiming to grow the overall marketplace. The company sees significant industry tailwinds, with sport and healthy lifestyles being embraced globally, and the line between sport and lifestyle blurring. As they execute their plan in FY '25 and introduce new innovations, they expect to regain market share, particularly in performance categories. NIKE plans to provide an updated outlook on growth and profitability at their Investor Day in November. -
Organizational Restructuring and Cost Base
Q: What's the status of NIKE's cost base reallocation?
A: NIKE has completed its organizational reset, aligning teams around sport and field of play. The headcount aspect of the cost reallocation is behind them. They have reallocated $1 billion into consumer-facing activities, investing in product design and merchandising functions. While these investments will take time to yield returns, they are essential to reignite brand momentum and connect with consumers. The company continues to manage operating overhead tightly to create capacity for investment.