NIKE, Inc. Class B (NKE.US) FY25Q2 Performance Conference: Expected double-digit decrease in revenue in the third quarter, with even greater pressure in the fourth quarter.

FY25Q2 (September-November 2024) Performance: Q2 revenue yoy -8%, currency-neutral yoy -9%. Customer traffic and terminal sell-through performance were lower than expected in September and October, but sales momentum significantly improved in November, aided by deeper discounts compared to last year. Black Friday sales in North America increased by double digits year-on-year, while Singles' Day performance in Greater China exceeded expectations. Nike/Converse brand currency-neutral yoy -8%/-18%. Breaking down Nike revenue, excluding the impact of exchange rates: North America/EMEAV/Greater China/APLA revenue yoy -8%1-10%1-11%-2%; Wholesale yoy -4%, Direct-to-consumer yoy -14%, with Direct-to-Consumer stores/DTC e-commerce yoy -2%1-21%; Gross profit margin -1.0ppt to 43.6%, mainly due to deeper discounts and changes in channel mix impacting DEBIT profit margin -2.9ppt to 11.3%, with North America/EMEA/Greater China/APLA EBIT profit margin -0.7/0.81-5.71-2.5ppt to 26.5%/25.2%/21.9%/26.4%. The company is focused on controlling supply of classic products, clearing channels, with year-end inventory level remaining largely flat year-on-year, but inventory quantity increasing year-on-year, with year-end inventory turnover days increasing by 6 days to 107 days; company inventory levels higher than expected, will increase promotional efforts in the second half of the fiscal year. Guidance: FY25Q3: Revenue decline by double digits, GPM -3.0 to 3.5ppt, SG&A slightly reduced FY25Q4 pressure greater than FY25Q3 Bloomberg consensus expectations: FY2025/2026 revenue yoy -8%/+4%, adjusted net profit yoy -34%/+14%, adjusted PE (FY25/26) = 29x/25x. Q & A Q: Can you provide detailed insights into the relationship with retail partners and their feedback, especially regarding regaining shelf space conceded over the past few years? A: We are absolutely committed to returning and leading consumer-driven market development. The key is being "consumer-driven," with some consumers wanting to shop at Nike Direct channels, others preferring wholesale channels, and some wanting to shop on digital platforms as well as physical stores, and we need to present the Nike brand in the best way in all channels. Regarding our key wholesale partners, we have a long history of collaboration and strong relationships. Especially in specialized channels such as running and soccer, we are investing in these areas and have begun taking action. Our collaboration with wholesale partners involves inviting them to key customer planning meetings or fall product experience events, and the feedback has been very positive. They want us to return to the essence of Nike, continue to launch innovative products covering all sports and price ranges, make bold brand promotions to attract customer traffic. Ultimately, they want mutually beneficial growth with us, which is what we aim to achieve. To regain shelf space, we need to implement the plans we have established, seize the market, introduce enticing innovative products every quarter, build a popular brand that attracts traffic and boosts sales, and they are open and receptive to this, and we look forward to re-engaging with them. Q: When planning near-term business investments to accelerate the brand's return to growth in the long term, what are the key factors in terms of phase-wise cost investments and investment pace, especially considering the growth recovery post-2025 fiscal year? A: First and foremost, sports must be at the core of everything we do. In terms of product management, clearing existing products from the market, shifting funds from performance marketing to brand marketing, investing in sports to drive product innovation, launch new products and establish differentiation, and investing in the brand through sports marketing and bold brand marketing activities to create demand. Secondly, conduct the so-called "ground war" in key countries and cities, initially focusing on five sports categories - running, basketball, training, soccer, and sportswear; focus on 3 key countries and 5 key cities among 10 key countries and 12 key cities. This will be gradually implemented in stages over the next 18-24 months. Furthermore, in the past few quarters, the company has tightly managed expenses, prioritizing investments in the brand and demand creation. Long-term sports partnerships, such as those with NFL, NBA, WNBA, and Brazil, will continue into the next decade. Investments in demand creation will continue to increase over the next few quarters, including sports marketing and brand investments. This quarter, sales, general, and administrative expenses (SG&A) decreased by 3%, but investments in demand creation increased by 1%, with demand creation expected to continue leading SG&A growth in the future. In terms of the profit and loss statement, the company made meaningful investments starting from the third quarter, including inventory clearance, handling of sales return reserves to make room for new products and innovations in the autumn and holiday seasons of 2025, and planning price reductions for factory outlets. Q: Accelerating lifestyle-related efforts in the 2025 fiscal year, how much incremental pressure is expected on 2026 sales? Based on product line analysis, when can new products reach a sufficient scale to offset this pressure? A: The company is taking action to reduce inventory in the market to make room for innovative products. The company has three brands - Nike, Jordan, and Converse, covering multiple sports categories, genders, product types, and price ranges. Based on the product display in the fall of 2025, retailers are excited about the upcoming products, which will be focused on running, training, and sportswear. A small cross-functional team is doing well in bringing innovative products to market. For the second consecutive quarter, the deceleration of these three brands was faster than the overall business, and the deceleration rate this quarter was higher than the first quarter, significantly impacting Nike's e-commerce business. These actions will lead to a reduction in the speed of sales for the remainder of this year.The financial data of Time is facing single-digit headwinds. With the acceleration of actions, it is expected that the impact on the remaining time of the year will be greater, and efforts will be made in the coming quarters to reduce supply weeks to ensure these brands recover to healthy full-price levels in the entire market. Summer orders for 2025 have slightly decreased compared to last year, reflecting the acceleration of actions, but the contributions of new products and innovation have almost offset this impact, indicating that the work of building product lines that began over a year ago is taking root with partners.A:modular efficiencyA: Growth will undoubtedly be helpful, and the measures and changes we are making will help achieve long-term sustainable revenue growth, including in product, marketing, and market clean-up. One of the leadership decisions I made after taking office was to have the current Chief Supply Chain Officer, Vnkv, report directly to me. He is responsible for all aspects from factory transportation to logistics to consumer-facing activities. Although I have only been in office for 60 days, as the company grows, this will be a key area of focus for expanding our profit margins. Historically, the company has maintained double-digit profit margins. In the current market environment, there are many opportunities for the future. For example, a few years ago we discussed the profitability of selling products through digital channels, but that was based on full-price sales. Currently, full-price sales and discounted sales each account for 50% of the business, and the profitability of this channel has been greatly challenged in the past few quarters. In addition to clearing inventory, there is also the opportunity to improve the profit margins of Nike's direct sales business, although the scale may be smaller, the business will be healthier and more profitable. This includes the team's efforts to reduce fulfillment costs, reduce reliance on paid media and performance marketing, while using brand investments to drive natural traffic growth. Q: In the next 12 months, what specific actions will be taken in North America and Greater China to accelerate related actions? A: In North America, new leader Tom Pet is responsible for the North American business, and he has extensive experience at Nike. He and his team will take a series of actions, including cleaning up the market, rebuilding relationships with wholesale partners, investing in the brand, and enhancing Nike's direct sales business. These actions will begin in January (spring) next year. They will also reset Nike's direct sales business using partnership relationships, invest in ground promotions, and more. In Greater China, in the long term, China has 1.3 billion consumers, and the biggest opportunity is to get consumers involved in sports and an active lifestyle to expand the entire market. Currently, the Chinese market is highly competitive with many promotional activities. The company has invested in product innovation, with both global and local product creation teams specifically tailored for the Chinese market, as well as the Nike Sports Research Lab (NSRL) conducting relevant research. Additionally, there is a need to create bolder, more consumer-centric Nike concept stores, providing quality service and experience. The company's two major partners, Topsports and Pou Sheng, are ready to cooperate. Overall, the key lies in product management, brand management, and market management. This article is sourced from the NIKE FY25Q2 earnings call summary compiled by the CICC Textile and Apparel Analyst Team; edited by GMTEight: Wen Wen.