Nike tumbles to five-year low as sales decline forecast clouds quick turnaround hopes

By Ananya Mariam Rajesh and Nicholas P. Brown

(Reuters) - Nike shares closed down 5.7%, falling to a five-year low on Friday after a warning of another quarter of sales decline sparked worries about the pace of a crucial turnaround at the sportswear giant under new CEO Elliott Hill.

The company on Thursday forecast a steeper-than-expected drop in fourth-quarter revenue and reported a 17% slump in quarterly sales in China amid weaker discretionary spending in the country.

Hill - who took on the role in October to help the company regain lost market share - has laid out what he called a "Win Now" strategy, which includes boosting on-the-ground presence in five key cities such as Shanghai and Beijing.

"The plan is there, (but) they are just not seeing results yet," said Jay Woods, chief global strategist at investment banking firm Freedom Capital Markets.

Nike's chief financial officer, Matthew Friend, also said it would take "several quarters" to clear out its dated stock, which would involve margin-hitting discounts.

The Dow component's shares hit $67.94 after markets closed on Friday, with the market value slipping to $106 billion.

Nike's shares have lost about 10.3% of their value so far this year following a 30% plunge in 2024.

Executives on the company's earnings call on Thursday highlighted the need to accelerate the pace in China, a major growth market that has weighed on sales for more than two years.

"Of all the geographies, product innovation is most important in China. So, the key for them to start to see stabilization is still going to be product newness," said Mari Shor, senior equities analyst at Columbia Threadneedle Investments, an investor in Nike.

To be sure, Hill has fast-tracked certain sneaker launches such as Pegasus Premium and Vomero 18 that helped the company post a smaller-than-expected drop in quarterly revenue and profit.

Still, Nike is looking to move past the previous management's strategy missteps that led to a lack of innovation for its product lines.

Its shares are down more than 22% since Hill's CEO announcement in September, giving up all the gains following his appointment.

Nothing in the executives' comments suggested positive results soon, but long-term shareholders have long been prepared to wait, said John Nagle, chief investment officer of Kavar Capital Partners, which holds Nike shares.

"This is going to be a multiple-year process," Nagle said.

Barclays analysts projected the earliest they foresee a turnaround is in the second half of Nike's fiscal year ending May 2026.

Nike's forward price-to-earnings ratio for the next 12 months, a benchmark for valuing stocks, was 31.08, compared with 17.33 for Deckers and 25.91 for Adidas.

"We're in the early stage of the turnaround still, it is taking longer than anticipated, perhaps, but not that surprising," Morningstar analyst David Swartz said.

(Reporting by Aishwarya Venugopal and Ananya Mariam Rajesh in Bengaluru and Nicholas P. Brown in New York; Editing by Sriraj Kalluvila)