A month has gone by since the last earnings report for Nike (NKE Quick QuoteNKE - Free Report) . Shares have lost about 8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nike due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

NKE Q1 Earnings Beat, Withdraws FY25 View

NIKE reported mixed first-quarter fiscal 2025 results, wherein the bottom line beat the Zacks Consensus Estimate while the top line missed. However, revenues and earnings per share (EPS) fell year over year. The company’s EPS of 70 cents declined 26% from the year-ago quarter. However, the figure beat the Zacks Consensus Estimate of 52 cents.

Revenues of the Swoosh brand owner declined 10% year over year to $11.59 billion and missed the Zacks Consensus Estimate of $11.65 billion. On a currency-neutral basis, revenues were down 9% year over year. While the top-line decline was almost in line with the company’s prior projection of a 10% decline, it reported lower-than-planned unit sales.

The company’s sales were also impacted by higher-than-expected traffic declines at NIKE Direct, with pronounced traffic softness at NIKE Digital and its partner stores in Greater China. This led to lower-than-planned retail sales, including wholesale partners, due to slightly higher inventories leading to increased promotional activity to drive conversion.

Sales at NIKE Direct were down 13% on a reported basis and 12% on a currency-neutral basis to $4.7 billion. The decline resulted from a 20% drop in NIKE Brand Digital, partly negated by a 1% rise at NIKE-owned stores. Also, wholesale revenues declined 8% year over year on a reported basis and 7% on a currency-neutral basis to $6.4 billion.

Due to the recent CEO transition and the remaining three quarters in the fiscal year, the company withdrew its fiscal 2025 guidance. However, it stated that it would provide quarterly guidance for the rest of the fiscal year. This approach allows the new CEO - Elliott Hill - to engage with employees, assess current strategies and business trends, and shape plans for fiscal 2026 and beyond. As part of this process, the company postponed its previously announced Investor Day.

NIKE shares declined 5.9% in the after-hours trading session on Oct. 1. While the company reported better-than-expected bottom-line results, its announcement of withdrawing the fiscal 2025 guidance and postponement of investor day impacted the share price.

How NKE’s Operating Segments Fared in Q1

The NIKE Brand revenues of $11.1 billion declined 10% year over year on a reported basis and 9% on a currency-neutral basis. Results were affected by declines across all geographies.

Within the NIKE Brand, revenues in North America declined 11% year over year to $4.8 billion. Sales at NIKE Direct were down 11% in the region, including a 15% decrease at Nike Digital and a 1% fall at NIKE Stores. Wholesale sales fell 11% year over year in North America due to unfavorable shipping timing.

In EMEA, the company’s revenues declined 13% year over year on a reported basis and 12% on a currency-neutral basis to $3.1 billion. The Wholesale business revenues fell 11% year over year. NIKE Direct revenues for the segment dipped 12%, with a 24% decrease at NIKE Digital, offset by 3% growth in NIKE Stores.

In Greater China, revenues dropped 4% year over year on a reported basis and 3% on a currency-neutral basis to $1.7 billion. NIKE Direct fell 16%, with NIKE Digital revenues falling a substantial 34% year over year and NIKE stores down 4%. Wholesale revenues for the region improved 10% year over year.

In APLA, revenues fell 7% year over year on a reported basis and 2% on a currency-neutral basis to $1.5 billion. NIKE Direct dipped 4%, driven by a 15% decline in NIKE Digital, negated by a 9% rise in NIKE stores.

Revenues at the Converse brand dropped 15% on a reported basis and 14% on a currency-neutral basis to $501 million. The decline was due to softness across all territories.

A Look at NIKE’s Costs & Margins Picture

The company’s gross profit declined 8% year over year to $5.3 billion, while the gross margin expanded 120 basis points (bps) to 45.4%. The gross margin expansion can be attributed to the decline in NIKE Brand product costs, reduced warehousing and logistics expenses, and gains from effective pricing actions.

Selling and administrative expenses fell 2% to $4 billion. As a percentage of sales, SG&A expenses increased 210 bps year over year to 34.9%. The rise in SG&A expenses was led by higher demand creation expenses, offset by reduced operating overhead expenses.

Demand creation expenses rose 15% year over year at $1.2 billion, owing to increased brand marketing expenses due to higher investments in key sports events. Operating overhead expenses were down 7% year over year to $2.8 billion on reduced wage-related expenses.

NKE’s Balance Sheet & Shareholder-Friendly Moves

NIKE ended the quarter with cash and cash equivalents of $8.5 billion, up nearly 37% year over year. Short-term investments were $1.8 billion, down 31% year over year. As of Aug. 31, 2024, the company had a long-term debt (excluding current maturities) of $8 billion and shareholders’ equity of $13.9 billion.

As of Aug. 31, inventories of $8.3 billion were down 5% from the prior-year level due to product mix shifts and lower product input costs.

In the fiscal first quarter, the company returned $1.8 billion to shareholders, including $1.2 billion in share repurchases and $558 million in dividends. As of Aug. 31, NIKE repurchased 99.7 million shares for $10.2 billion as part of its four-year $18-billion share repurchase program approved in June 2022.

NKE’s Forward Outlook

While NIKE withdrew its guidance for fiscal 2025, it outlined its expectations for second-quarter fiscal 2025.

For the second quarter of fiscal 2025, NIKE estimates revenues to decline 8-10%. It expects the fiscal second-quarter gross margin to decline 150 bps due to higher promotions, channel mix headwinds and supply-chain deleverage. This is expected to be partly offset by reduced product costs and a decreasing benefit from strategic pricing actions.

The company anticipates SG&A expenses to be about flat with that reported in the prior-year quarter, driven by higher demand creation expenses, offset by tighter operating overhead costs. NKE estimates other income and expenses, including net interest income, to be $30-$40 million on lower interest rates. The company anticipates an effective tax rate in the high-teens range.

Additionally, the company provided some expectations on the forward quarters, expecting revenue projections to moderate since the start of 2024, driven by soft traffic trends in NIKE Digital, retail sales trends across the marketplace and lower final order books for spring. The company also expects franchise management actions to continue throughout the year and anticipates a similar impact in scale as experienced in the fiscal first quarter.

Nonetheless, NKE expects slight revenue improvements in the second half of fiscal 2025 compared with the first half due to its efforts to introduce and scale newness and innovation across the marketplace. The company expects year-over-year gross margin declines in the forward quarters on incremental headwinds related to promotions, channel mix and the supply chain. It aims to maintain cost discipline, mainly operating overhead, while anticipating increased investments to drive brand momentum.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -21.73% due to these changes.

VGM Scores

At this time, Nike has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Nike has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.