After a weak first half, will NIKE (NKE) hit the recovery path this year?

After a protracted slowdown, NIKE, Inc. (NYSE: NKE) is working on a turnaround plan to regain the brand’s strength. In recent years, the sneaker giant’s overall performance has not been very impressive, as the mass shift to online shopping and intense competition have taken a toll on sales.

Nike’s stock, which has been in a downward spiral for quite some time, traded sideways over the past six months. The shares have lost about 30% in 2024. Last week, investor sentiment dipped after the company lowered its guidance, outweighing the second-quarter earnings beat.

Mixed Outcome

Net income decreased 26% annually to $1.2 billion in the second quarter, while earnings per share dropped 24% to $0.78 per share. Meanwhile, earnings surpassed expectations, marking the sixth beat in a row. At $12.4 billion, second-quarter revenue was down 8% from the prior-year quarter but exceeded estimates. The top line was hurt by a double-digit fall in footwear sales, which accounts for more than 60% of revenue. Sales declined across all geographical segments.

Meanwhile, the company expects its summer order books to be down compared to the prior year as it targets a significant reduction in weeks of supply of its classic footwear franchises over the next few seasons. It is estimated that the net effects of measures being initiated under the new leadership would result in a decline in revenue, additional gross margin pressure, and higher demand creation expenses. Third-quarter revenue is expected to drop in low-double digits, with deepening foreign exchange headwinds adding to the strain on the top line.

New Hopes

While there is optimism that Nike is poised for a turnaround under its new CEO, Elliott Hill, investors remain cautious. Elliott became the new head in September this year, replacing John Donahoe who stepped down after facing criticism for weak sales performance and the stock’s downfall. This is Elliott’s new stint in the company, after retiring in 2020 as a senior executive.

“We create innovative and coveted products, tell emotional inspiring stories through our brand, and execute in a way that grows the entire marketplace, digital and physical, wholesale, and NIKE Direct. My leadership team and I have already identified key near term actions in each area, and we’re going to move fast. First, in product. We’re getting sharper on specific sports. We’re shifting into sport-led teams segmented by men’s, women’s, and kids, and we call each of them fields of play,” Elliott said at the Q2 earnings call.

Extending the recent downtrend, Nike’s stock traded lower during Monday’s session. At $76.94, the last closing price nearly matches the stock value from six months ago.