NIKE, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Reprioritization on Sport: Re-focused on putting sport at the center and athletes at the core of decisions, aiming to get back to leveraging strengths like iconic brands, athletes, innovation, etc.
• Product Adjustments: Shifted to sport-led teams segmented by men's, women's, and kids (fields of play). Returned to franchise management discipline, managing inventory and planting seeds for new franchises. For example, started managing inventory in marketplaces and working on next franchises.
• Brand Marketing Investment: Increased investment in bold brand marketing leveraging athletes in sport moments and local community engagement. Announced long-term sports marketing partnerships like with NFL, NBA, etc.
• Marketplace Rebalancing: Elevated NIKE Direct to premium destinations, reduced promotional activity, and leveraged NIKE Value Stores for excess inventory. Rebalanced resourcing in key countries/cities to empower local teams.
• Wholesale Partner Relationships: Committed to rebuilding relationships with wholesale partners, investing in their business, and supporting mutually profitable sell-through. Already started key account planning and product engagement meetings with partners.

Segment Performance

• North America: Q2 revenue was down 8%. NIKE Direct declined 15% (NIKE Digital down 22% and NIKE Stores down 3%), Wholesale declined 1%.
• EMEA: Q2 revenue declined 10%. NIKE Direct declined 20% (NIKE Digital down 32% and NIKE stores up 3%), Wholesale declined 4%.
• Greater China: Q2 revenue declined 11%. NIKE Direct declined 7% (NIKE Digital down 4% and NIKE stores down 8%), Wholesale was down 15%.
• APLA: Q2 revenue was down 2%. NIKE Direct declined 4% (NIKE Digital down 8% and NIKE stores up 2%), Wholesale declined 1%.

Guidance

• Q3 Outlook: Expected Q3 revenues to be down low double-digits. Q3 gross margins expected to be down approximately 300-350 basis points, including restructuring charges. Q3 SG&A dollars slightly down year-over-year. Strategic actions will lead to lower revenue, additional gross margin pressure, and higher demand creation expenses, with a greater headwind in the fourth quarter compared to the third quarter.

Risks

• Market Competition: Intense competition in the market could impact sales and market share.
• Inventory Management: Inventory levels are higher than desired, and liquidating excess inventory through less profitable channels may affect margins.
• Promotional Impact: High promotional activity has negatively impacted the brand and partner profitability, and shifting to a more premium model requires careful execution.

Question and Answer

• Q: Elaborate on relationships with retail partners and earning back shelf space.

A: Committed to a consumer-led marketplace. Have deep relationships with wholesale partners, are investing in key areas like running specialty, and will bring innovative products and bold brand statements to drive mutually profitable growth. Partners want NIKE to get back to being NIKE with innovative products and brand heat to drive traffic.

• Q: Incremental pressure on 2026 sales and newness offsetting pressure.

A: Accelerated product actions, with fields of play delivering innovation. There are new product pipelines in running, training, basketball, sportswear, etc. Partners are excited about the upcoming product, and small cross-functional teams are driving innovative product into the marketplace.

• Q: Margin recapture potential, timeline for inventory realignment.

A: Fields of play focus on sports like running, basketball, training, football, and sportswear. Transitory headwinds from cleaning the marketplace and inventory actions are expected to recapture as the business returns to growth. Timelines for reducing weeks of supply of classic footwear franchises vary by franchise, channel, market, and geography.

• Q: Actions in North America and China.

A: In North America, Tom Petty and his team are aggressive in cleaning the marketplace, building partner relationships, and investing in the brand, with actions starting in spring. In China, focused on product innovation (local Express Lane, sports research lab), bold brand statements, and resetting the marketplace to grow the overall sports marketplace.

• Q: Expense guide and headwinds.

A: SG&A guide includes restructuring charges. The fourth quarter will have a greater headwind than the third quarter for revenue, margin, and demand creation spend due to different timelines of implementing strategic actions across regions.