Nike (NKE) shares surged by almost 10% in after-hours trading, fuelled by growing investor optimism that the company's long-awaited turnaround strategy may finally take hold, even as it posted its worst quarterly earnings in over three years.
On Thursday, the Oregon-based sportswear giant reported fourth-quarter revenues of $11.1bn (£8bn), surpassing analyst expectations, though it marked the lowest revenue figure since Q3 2022. Net income plummeted 86% to $211m, or 14 cents per share, compared to $1.5bn, or 99 cents per share, in the same period last year—yet still exceeded Wall Street forecasts.
Nike’s (NKE) chief executive Elliott Hill said: “The results we’re reporting today in Q4, and in FY 25 are not up to the Nike standard."
The company also warned that US president Donald Trump’s trade tariffs could cost it around an extra $1bn.
Amid these results, Mamta Valechha, a consumer discretionary analyst at Quilter Cheviot, remained cautious. “Nike (NKE) continues to slump, with its fourth quarter the worst in at least two decades. Sales were down 12%, while its operating margin was a meagre 2.9%. The sales themselves had actually come in ahead of really low expectations, producing an earnings beat.”
Valechha pointed to underlying challenges, adding: “These troubling numbers, though, suggest that Nike (NKE) may nearly be at rock bottom. The share price rallied strongly in after-market trading as investors are beginning to expect a positive rate of change going forward. It has been a difficult period for Nike following the pandemic, and the threat of tariffs simply is not helping the situation for the company.”
Though the company’s outlook for the coming quarter remains grim, Valechha noted that the road to recovery would likely be gradual. “It will be a slow recovery, however. Management is expecting further sales declines and record-low operating margins for Q1. That said, it is setting itself a low bar, hoping to give itself room for manoeuvre and the ability to beat expectations from investors and begin to drive positive momentum back into the business.”
Nike's (NKE) strategy to clean up inventory levels and reduce discounting could be pivotal in driving future growth. However, Valechha said that fresh, in-demand product launches are crucial. “Ultimately, Nike needs to produce new products that people want to buy, bringing about increased demand to help bring sales back to the company. The green shoots of recovery are beginning to show themselves in some divisions, but more could soon be on the way.”