Under the impact of promotional activities, NIKE, Inc. Class B (NKE.US) Q2 revenue and profits both declined. The CEO admitted that the new strategy may affect short-term performance.

Despite NIKE, Inc. Class B (NKE.US) reporting better-than-expected performance for the second quarter of its fiscal year 2025, it seems that under the leadership of new CEO Elliott Hill, the company will need more time to turn things around than expected. On Thursday, after the retailer blamed declining revenue and profits on heavy discounts, Hill outlined the strategy to drive the company back to growth. Hill and CFO Matt Friend stated that the sportswear giant has been relying on promotions to drive sales and plans to transition its online business back to full-price mode, but first, it needs to actively clear old inventory through "lower-margin channels." "I see that direct, digital and physical traffic for NIKE, Inc. Class B has all been declining as we lack freshness... and we haven't been telling an inspiring story. The result is we're discounting too heavily... and going into this year, our digital platform is splitting half the price to promote sales. The markdowns not only impact our brand, but also disrupt the whole market and our partners' profitability," Hill said. "I admit that some of these actions will have short-term negative effects on our performance, but our perspective is long-term," Hill added. Therefore, NIKE, Inc. Class B expects its gross margin for the holiday quarter to decrease by 3 to 3.5 percentage points. The company also forecasts a low double-digit decline in sales, worse than analysts' average expectations. In the second fiscal quarter ending November 30, NIKE, Inc. Class B's net profit dropped to $1.16 billion, or 78 cents per share, compared to market expectations of 63 cents per share and the previous year's $1.58 billion, or $1.03 per share. Revenue decreased to $12.35 billion, approximately 8% lower than the $13.39 billion in the same period last year, and below market expectations of $12.13 billion. After the financial report was released, NIKE, Inc. Class B's stock price initially surged in after-hours trading, but narrowed after Hill's opening remarks during the call with analysts. "In the 60 dynamic days I've spent with my NIKE, Inc. Class B teammates, it's been clear that our top priority is to make sports the center of everything we do. Our team is ready, and I believe you will see more moments of NIKE, Inc. Class B becoming NIKE, Inc. Class B again," Hill said in a press release. Hill joined NIKE, Inc. Class B in the 1980s as an intern and left the company in 2020. Tasked with turning around the global sportswear company, which has fallen behind in innovation, lost market share, and messed up its sales strategy, Hill's mission is to change the company's course. The company has been adjusting its product portfolio and heavily discounting to clear inventory. Under former CEO John Donahoe, the company focused on three key franchises - Air Force 1, Dunk, and Air Jordan 1 - for growth, but these shoes are now oversaturated and losing their past uniqueness. Therefore, NIKE, Inc. Class B is trying to cut back on supply, stating that this will impact sales in the short term but hopefully not in the long term. In the recent quarter, NIKE, Inc. Class B saw a 13% decline in sales in its physical stores and online, and a 3% decrease in wholesale revenue. Heavy discounts led to a 1 percentage point decrease in the gross margin to 43.6%, slightly better than analysts' expectation of 43.3%. Another area to watch is inventory, which remained flat at $8 billion compared to the same period last year. Increased production was offset by lower product input costs and a shift in product structure. While sales declined in all four regions for NIKE, Inc. Class B, performance in all regions except China exceeded expectations. Sales in the Chinese market dropped by 8% to $1.71 billion, below analysts' expectation of $1.75 billion. In North America, sales for NIKE, Inc. Class B were $5.18 billion, an 8% decrease, but above market expectations of $5.01 billion. In Europe, Middle East, and Africa, sales decreased by 7% to $3.3 billion, slightly above market expectations of $3.26 billion. In Asia Pacific and Latin America, sales decreased by 3% to $1.74 billion, above analysts' expectation of $1.62 billion. Converse, acquired by NIKE, Inc. Class B in 2003, also dragged down the overall performance of the company, with sales declining by 17% to $429 million, well below analysts' expectation of $462.6 million. The CEO of partner Foot Locker, Inc. (FL.US), Mary Dillon, stated in an interview that the shift away from Dunk and Air Force 1 and heavy discounts by NIKE, Inc. Class B also impacted their company. In the third-quarter financial report released on December 4, the company's revenue and profit both fell short of Wall Street's expectations, partly due to soft demand for NIKE, Inc. Class B products. The dismal performance of Foot Locker, Inc. serves as a warning for NIKE, Inc. Class B, indicating that investors may need to be patient while waiting for the sportswear giant to turn things around. In addition to fixing NIKE, Inc. Class B's product lineup, which Hill has been in charge of for only two months, there is still much work to be done. He needs to strengthen NIKE, Inc. CClass B's innovative channels, readjustment of relationships with wholesalers, and boosting morale following a series of layoffs and cultural breakdowns.Since taking over, he has already won several victories. The NFL announced on December 11 that, after briefly seeking other bidders, it has renewed its contract with NIKE, Inc. Class B. Amid criticism of innovation lag and poor NFL uniform release, the NFL has decided to renew its contract with NIKE, Inc. Class B until 2038, which is a significant vote of confidence. Now, NIKE, Inc. Class B has become the exclusive uniform supplier for the NFL, MLB, and NBA. As of Thursday's close, NIKE, Inc. Class B's stock price has fallen by about 27% this year, compared to a 27% increase in the S&P 500 index.