Nike's second-quarter performance exceeded market expectations, but it is still far from emerging from the quagmire, warning that the revenue decline in the third quarter will exceed double digits.
The latest financial report shows:
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Nike's second quarter (three months ending November 30) net income fell 7.7% year-on-year to $12.35 billion, higher than analysts' expectations of $12.13 billion;
Net profit fell 25.6% year-on-year to $1.16 billion, or 78 cents per share, also exceeding analysts' expectations.
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After the report was released, Nike's stock price immediately soared 11%, but after the CEO made a pessimistic statement, the stock price gave back most of its gains. So far this year, Nike's stock price has fallen nearly 30%.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/967b5f2b-7534-483f-8a3a-dd71c822fec2.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/967b5f2b-7534-483f-8a3a-dd71c822fec2.png"/>
Nike's new CEO Elliott Hill stated in his first conference call since returning that Nike's efforts to regain lost market share will bring some short-term pain, and the company &#34;has lost its obsession with sports.&#34;
Hill vowed to refocus Nike's business on sports and sell more products at higher prices to get Nike back on track, but he added that &#34;this transition will take time.&#34;
According to the financial report, Nike's physical and online sales fell by 13%, and wholesale revenue declined by 3%. Significant discounts led to a 1 percentage point drop in gross margin to 43.6%, slightly above the Street Account analysts' expectation of 43.3%.
By market, Nike's sales declined to varying degrees in four international markets, with North America down 8%, Europe, the Middle East, and Africa down 7%, and Asia-Pacific and Latin America down 3%.
<h2>Release all bad news and rebuild from a low starting point</h2>
&#34;I found that Nike's direct traffic (both online and physical) has declined because our products lack novelty and do not provide inspiring stories,&#34; Hill said on the call. &#34;The result is that we over-promoted... entering this year, the ratio of full-price to promotional sales on our digital platforms was roughly 50/50. The extent of the price cuts has not only affected our brand but has also disrupted the profitability of the entire market and our partners.&#34;
Therefore, Nike expects gross margin during the holiday season to decline by 3 to 3.5 percentage points. Additionally, Nike also expects sales to decline by double digits, which is worse than Wall Street's expectations.
Hill severely criticized the strategies adopted during his predecessor John Donahoe's tenure as CEO.
He stated that the company invested too many resources in driving online sales, paying performance marketing fees, and isolating wholesale partners—strategies he now plans to eliminate. He acknowledged that key wholesale partners feel that Nike has abandoned these relationships and stated that the company is currently working to rebuild their trust.
&#34;We know our sales team must earn every cent of 'open buy' money, but our investment is to ensure our partners feel supported,&#34; Hill said. &#34;What we do is not just sell our products
&#34;We will actively support mutually beneficial sales. In short, we only profit when our partners profit.&#34;
The question is, if the performance is not as bad as the outside world imagines, why do the executives frequently release pessimistic signals to the outside?
An article from Wall Street Insight pointed out that Nike's new management may be adopting a financial strategy called 'kitchen-sink.' This strategy refers to a company disclosing all possible negative information and losses at once over a period of time, in order to show better performance in future financial reports. This is somewhat similar to the purpose of &#34;financial bathing&#34; behavior of A-share listed companies.
Rather than stubbornly sticking to unrealistic goals and disappointing investors with repeated misses, it is considered wise to pause guidance and replace it with achievable targets.
Hill interned at Nike in the 1980s and left the company in 2020. The primary issue he faces now is how to turn around the fortunes of the world's largest sports apparel company. For a long time, Nike has lagged in innovation, and its sales strategies have failed one after another, ceding market share to competitors.
&#34;I have an inexplicable love for this company. I know Nike inside and out, I am proud of what the brand represents, and I want to see the company succeed,&#34; Hill said. &#34;At a time when our team, brand, and business are facing challenges, my only focus is to help us get back on track and regain victory.&#34;

Nike's revenue and net profit for the second fiscal quarter both exceeded market expectations, but it has not yet reversed the downward trend, warning that the revenue decline in the third fiscal quarter will exceed double digits, and returning to the right track "will take time."

- Nike's Q2 performance exceeded market expectations, but the company warns of a significant revenue decline in Q3.  
- The latest report shows a 7.7% year-over-year drop in net revenue to $12.35 billion, with a 25.6% decline in net profit, despite surpassing analyst forecasts.  
- CEO Elliott Hill emphasized the need to refocus on sports and rebuild trust with wholesale partners, while anticipating a further drop in gross margins and sales during the holiday season.

Nike's financial report "barely passes," CEO continues to lower expectations: turning the situation around will be a long process