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Alsharq Tribune- M.Essam
Nike's efforts to steady its business face a fresh setback, with executives cautioning that unrest in the Middle East could further complicate the turnaround, while the sportswear giant still struggles to regain traction in China.
The company on Tuesday warned of a sharp drop in current-quarter sales and slower-than-expected progress on its turnaround, as higher trade-related costs squeeze its margins and cautious consumers rein in spending.
Shares of the company slumped 10% to $47.35 in premarket trading on Wednesday and were on track to open at their lowest in over a decade. On an earnings call, Chief Financial Officer Matthew Friend said the conflict in the Middle East had already disrupted shopping behavior in parts of Europe, the Middle East and Africa, contributing to softer store traffic and weaker sportswear sales.
"The Middle East conflict is compounding the pressure, with Nike flagging traffic disruption and elevated inventory across EMEA," said Josh Gilbert, market analyst at eToro.
Nike CEO Elliott Hill, who took the helm in 2024, has been looking to steady the company as it grapples with several challenges, including a sluggish digital business, stubborn excess inventory and intensifying competition from Chinese sportswear brands.
To boost margins and bolster investor confidence, Hill has moved to rein in promotions, sharpen product innovation and refocus the business on core franchises such as running.
The efforts showed some signs of improvement in the reported quarter, with the running category growing over 20%, but analysts still see a long road ahead for Nike.
At least eight brokerages cut their price target on the stock. "We are turning at least somewhat frustrated, with seemingly slower than planned pace of recovery," Oppenheimer analyst Brian Nagel said.
The company's forward price-to-earnings multiple, a common benchmark for valuing stocks, is 25.47, compared with 13.54 for Adidas and Under Armour's ratio of 25.72, according to LSEG data.
"These earnings show Nike is keeping pace at a steady jog, but it keeps tripping over hurdles along the way," eToro's Gilbert added. "Patience is clearly the price of admission."
