As a result of poor consumer spending, the creator of the Air Jordan 1 sneaker, Nike (NKE.N), had to lower its annual revenue projection and announce a shift in focus from sales to profit. As a result, shares of other sportswear firms fell along with Nike’s 12% premarket decline on Friday.
Along with announcing a $2 billion cost-cutting strategy on Thursday, the firm also announced that it was taking a “more prudent approach” to its remaining-of-the-year planning, attributing the projected reduction to weaknesses in its web business and more aggressive marketing.
Due to this, shares of competitors Puma (PUMG.DE) and Adidas (ADSGn.DE) fell by around 5% apiece, while Lululemon (LULU.O) had a 2% decline and Under Armour (UAA.N) saw a 6% decline before the bell.
“The retail and wholesale industries in the United States are not new to ‘ margins before sales.’ It has been customary for businesses to guide for a lower top line offset by higher margins and cost-cutting as they clear out inventories against a challenging economic environment, according to a report from Adrienne Yih, an analyst at Barclays.
According to some experts, Nike may also lag behind rival brands in innovation and market dominance, like Lululemon (LULU.O) and Deckers Outdoor’s (DECK.N) Hoka.
TD Cowen analysts downgraded the shares to “market perform” from “outperform,” saying that “Nike needs increased and improved marketing investments while HOKA, On, and Lululemon are scaling further with increased customer acquisition and retention.”
Nike also revealed intentions to streamline its product line, boost automation, and introduce newer designs to draw in customers.
“While we think this (cost-saving plan) is a positive shift, it will take time to scale newness and innovation, and a soft macro will further pressure results in the meantime.” Abbie Zvejnieks, a Piper partner, said to change its $112 price objective to $107.
Adidas had a forward price-to-earnings ratio of 44.48, whereas Nike’s was 30.01 for the following year, which is a standard benchmark for company valuation.
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