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Nike NKE.N’s efforts to turn around its business are facing another setback, with executives warning that unrest in the Middle East could further complicate the turnaround, while the sportswear giant still struggles to regain its footing in China.
On Tuesday, the company warned of a sharp fall in sales in the current quarter and slower-than-expected progress in its recovery, as rising costs of doing business squeeze margins and cautious consumers cut spending.
The company’s shares fell 10% to $47.35 in pre-market trading Wednesday and were on track to open at their lowest level in more than a decade.
During an earnings conference call, Chief Financial Officer Matthew Friend said the conflict in the Middle East had already disrupted shopping behavior in parts of Europe, the Middle East and Africa, contributing to lower store traffic and lower sales. sportswear.
“The conflict in the Middle East is adding to the pressure, with Nike reporting traffic disruption and high inventory in EMEA,” said Josh Gilbert, market analyst at eToro.
Nike Chief Executive Elliott Hill, who took the helm in 2024, has sought to stabilize the company as it faces several challenges, including a sluggish digital business, persistent excess inventory and increased competition from Chinese clothing brands. sports.
To boost margins and build investor confidence, Hill has worked to limit promotions, improve product innovation and refocus the company on its core businesses, such as running.
Those efforts showed some signs of improvement over the past quarter, with the running category growing more than 20%, but analysts say Nike still has a long way to go.
At least eight brokerage firms have lowered their price targets for the stock.
“We are somewhat frustrated because the pace of recovery appears slower than expected,” said Brian Nagel, an analyst at Oppenheimer.
The company’s forward price-to-earnings multiple, a common benchmark for valuing stocks, is 25.47, compared with 13.54 for Adidas and 25.72 for Under Armour, according to LSEG data.
“These earnings show that Nike is maintaining a steady pace, but continues to hit bumps along the way,” eToro’s Gilbert added.
“Patience is clearly the price of entry
