Shares of Nike (NKE 1.94%) fell Friday morning after the sportswear giant delivered another disappointing set of results in its fiscal 2025 third-quarter earnings report Thursday afternoon. Revenue declined, and the company warned that tariffs could slow its recovery, adding to investors' doubts about its turnaround prospects. As a result, the stock was down 5.3% as of noon ET.
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Nike is still losing air
In the period, which ended Feb. 28, Nike's revenue fell by 9%, or 7% on a currency-neutral basis, to $11.3 billion, though that beat the consensus estimate of $11.03 billion.
Nike Direct revenue fell 12% to $4.7 billion, while wholesale revenue dipped 7% to $6.2 billion. Sales for its Converse unit fell 18% to $405 million.
Gross margin in the quarter was down 330 basis points to 41.5%, showing the company is still clearing inventory through markdowns. Total inventory was down 2% to $7.54 billion, but that still fell at a slower pace than revenue, suggesting that its inventory remains overstocked.
On the bottom line, earnings per share declined from $0.77 to $0.54, though that also topped analysts' consensus estimate of $0.28.
CEO Elliott Hill expressed optimism about the turnaround. "The progress we made against the "Win Now" strategic priorities we committed to 90 days ago reinforces my confidence that we are on the right path," he said in the earnings press release.
NYSE: NKE
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What's next for Nike?
While much of Nike's business shrunk in the quarter, the company did show some promising signs, including a return to growth in running. North American apparel sales also grew 7%.
However, management said that it would continue to scale back on classic styles, including Dunks, in the fiscal fourth quarter, and would pull back on digital ad spending in line with its goal of driving a full-priced model and a pull marketing strategy.
As a result of those strategic decisions, the company expects revenue to decline by a mid-single-digit percentage in the fourth quarter, with a gross margin contraction of 400 to 500 basis points, though it said comparisons would moderate after that.
That weak guidance likely explains the pullback in the stock on Friday. While it's in line with Nike's recovery plan, investors are understandably frustrated with the continued contraction in the business. Despite that frustration, it would be a mistake for investors to give up on a brand of Nike's stature over the long term. It should eventually return to growth.
