Nike on Thursday reported a small sales increase in the second quarter of its fiscal year, ostensibly another sign of progress on Chief Executive Elliott Hill’s ongoing turnaround plan. But the company’s stock tumbled on worries about profit margins and China.
The sportswear company has reported sales increases in two consecutive quarters, breaking a streak of five consecutive quarters of sales declines – a rare slump for Oregon’s biggest company.
“I’d say we’re in the middle innings of our comeback,” Hill said on a call with stock analysts.
For the quarter ended Nov. 30, Nike reported $12.4 billion in sales, a 1% increase, and above the $12.2 billion expected by Wall Street analysts. Nike also reported $0.53 in earnings per share, above the $0.37 consensus estimate of analysts.
But there were red flags for investors.
Sales in China, a closely watched geography, decreased 17% and came in below expectations.
Converse sales fell 30% to $300 million.
On the earnings call, Chief Financial Officer Matt Friend also gave a gloomier outlook than expected.
Friend said Nike expects sales in the current quarter to decrease by a low single-digit percentage. Wall Street had been expecting a slight sales increase. He also said Nike expects its profit margin to shrink because of the ongoing costs of tariffs, which Nike previously said amount to $1.5 billion in annual costs.
Nike stock was down more than 10% in after-hours trading within an hour of the conclusion of the earnings call. It’s down 13% this year.
But Hill and Friend remain bullish on Nike’s turnaround prospects. And so do some analysts.
“Progress continues is the theme,” Randal Konik, a Jefferies analyst, said in a note to investors before the call.
Since he started work in October of last year, Hill has refocused the company on sports, worked to reboot Nike’s culture, overhauled its executive ranks and rebuilt relationships with wholesale partners.
For the second consecutive quarter, Hill pointed to the company’s performance in North America as proof that the new focus on sports and wholesale is working.
Nike reported $5.63 billion in sales in North America, the company’s biggest market. Sales increased 9%, above Wall Street expectations. Nike’s wholesale business grew 20% in North America.
But other markets have been slower to rebound.
Sales in Nike’s Asia Pacific and Latin America market decreased 4%. Sales in the company’s European market, which also includes the Middle East and Africa, only increased 3%.
On the call, Hill and Friend fielded multiple questions from analysts about how long it’s going to take for other parts of Nike’s business to bounce back.
Hill said the turnaround plan is a winner, but it remains a work in progress. He said recently announced moves, including adding the heads of Nike’s four geographic territories to his leadership team, will speed up the turnaround.
“We’re confident in our path forward,” he said.
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