Nike estimates beat on EPS, but lost ground overall

NIKE (NKE 0.83%)the sportswear giant behind the Swoosh, released its fiscal first quarter 2025 earnings on October 1. The company reported $0.70 diluted earnings per share (EPS), beating analysts’ consensus estimate of $0.52. However, its revenue of $11.59 billion was about 0.5% below analysts’ forecast of $11.64 billion, and other metrics were disappointing.

Source: Analyst estimates for the quarter provided by FactSet.

Understanding Nike

Nike specializes in the design, manufacture and marketing of athletic footwear, apparel and equipment, with brands including Converse and proprietary technologies such as Nike Air, Zoom and Flyknit.

Recently, Nike has focused on product innovation and improving its digital engagement platforms. Its strategic focus has been on strengthening brand power and consumer connection — key competitive factors in a highly dynamic retail landscape.

Quarterly highlights

The company posted a 10% year-over-year drop in revenue in the fiscal quarter that ended Aug. 31. Nike’s digital sales were down 20%, a clear indicator of declining online engagement. That accounted for most of the 13 percent decline in Nike Direct revenue to $4.7 billion. Meanwhile, wholesale revenue fell 8%.

Gross margin improved 120 basis points to 45.4% due to factors such as lower product and storage costs and strategic pricing actions taken in the prior year. CFO Matthew Friend noted these efficiency improvements as critical offsets to revenue challenges.

The company faced a broad decline in sales in every geographic region: revenue fell 11% in North America; down 13% in Europe, Middle East and Africa; down 4% in Greater China; and down 7% in Asia Pacific and Latin America.

Nike’s marketing spending — which the company labels “demand creation spending” — rose 15 percent to $1.2 billion, reflecting an intense focus on brand marketing amid major sporting events.

Inventories were down 5% to $8.25 billion. This indicates improved efficiency in managing inventory levels and adapting to changes in the product mix.

Looking ahead

Nike refrained from providing updated guidance, citing the ongoing CEO transition and the delay to the next day for investors. This lack of clarity introduces a degree of uncertainty about the company’s short-term strategic direction. Management has suggested that fiscal year 2025 will be a year of transition, emphasizing the continued need for innovation and logistical efficiency to bounce back from current challenges.

Investors should closely monitor Nike’s digital sales, given the 20% decline this quarter. Reviving digital engagement will be crucial to its efforts to regain lost ground. Additionally, tracking how the company navigates competitive pressures and market conditions in its key areas will provide insight into its potential for recovery in the coming quarters.