Recently, 361 Degrees (01361) "officially announced" the signing of American professional basketball star Nikola Jokic as the company's global brand spokesperson, which has attracted widespread attention in the sports circle. However, when Jokic's fans were ready to budget and look forward to the release of Jokic's new "combat boots", the sports giant on the other side of the ocean, Nike (NKE.US), was quite "disappointed".
Zhitong Financial APP learned that Jokic was a signed star under Nike. Earlier this year, Nike also announced the termination of the contract of another American professional basketball star, Kyrie Irving, who immediately switched to Anta Sports (02020). It is interesting to note that when Jokic signed 361 degrees, Nike's stock price also played a "high diving" drama. On December 22, Beijing time, Nike's stock price opened sharply lower, falling more than 12% intraday, and the previous upward trend came to an abrupt end.
Source: Futubull
Revenue growth is under pressure and full-year guidance is lowered
As the world's leading sports brand, it is difficult for Nike to shake its foundation because of a star's "change of door", but if the company's performance growth prospects are weak, investors will "vote with their feet".
Zhitong Financial APP learned that on December 22, Nike released its results for the second quarter of fiscal year 2024 as of November 30, 2023. According to the financial report, in the second quarter, the company achieved revenue of about 13.388 billion US dollars, a year-on-year increase of 0.5%, and net profit attributable to the parent company of about 1.578 billion US dollars, a year-on-year increase of 18.56%. In addition, the company's gross sales margin reached 44.6% in the second quarter, a year-on-year increase of 1.7 percentage points, due to the increase in product pricing, the return to normal freight rates and the company's prudent control of sales discounts.
In terms of operating efficiency, as of the end of the second quarter, the company's inventory was US$7.979 billion, down 14% from US$9.326 billion in the same period last year, and the number of days of inventory turnover at the end of the period decreased by 24 days year-on-year to 101 days.
According to the observation of Zhitong Financial APP, although Nike's operating fundamentals remain resilient as a whole, the company's growth performance on the sales side is unbalanced. In terms of brands, the Nike brand achieved revenue of $12.87 billion in the second quarter, a year-on-year increase of 1.2%, while the revenue of the Converse brand decreased by 11.4 to $520 million year-on-year.
Geographically, revenue in North America and EMEA decreased 3% year-over-year, revenue in Greater China increased 8% year-over-year, and revenue in Asia-Pacific and Latin America (APLA) increased 7% year-over-year. According to Guosen Securities research report, Nike in North America and Asia-Pacific Latin America in the second quarter was better than the Bloomberg consensus estimate, and Europe, the Middle East and Africa (EMEA) and Greater China were lower than the Bloomberg consensus estimate.
It can be seen that Nike's performance growth is more dependent on markets outside North America, and the sustainability of this growth pattern will be tested in the short term. Zhitong Financial APP learned that Nike lowered its full-year revenue growth to 1%, lower than the previous mid-single-digit growth guidance. According to Guosen Securities Research Report, Nike's downward revision of guidance is mainly due to the increase in macro pressures, especially in Greater China and EMEA. Compared to the end of the previous quarter, lifecycle management of key products, as well as a stronger U.S. dollar, negatively impacted revenue in the second half of the year. At the same time, supply chain disruptions and accelerated clearance in the previous year had an adverse impact of about 400 basis points.
It is worth noting that Nike also proposed in its earnings report a plan to cut costs by about $2 billion over the next three years. The company plans to simplify its product portfolio, increase automation and use of technology, streamline the overall organization, and leverage its scale to "increase efficiency." The company plans to reinvest the savings from these initiatives into driving future growth, accelerating innovation and improving long-term profitability.
Matthew Friend, Nike treasurer, said in a statement: "As we look ahead to a softer revenue outlook for the second half of the year, we remain focused on strong gross margin execution and disciplined cost management. The plan will cost Nike $400 million to $450 million in pre-tax restructuring charges, which will be substantially realized by the company in the current quarter. Nike said those expenses were primarily related to employee severance pay.
Fight in the Greater China market
Nike pays so much attention to "throttling", and it is not difficult to understand that the company let Jokic go, after all, there is a rumor in the basketball world that "centers don't sell shoes since ancient times". However, it should be noted that these high-quality idols "flow" to the Chinese sports brand market to help Chinese competitors achieve upward growth in brand power, which is not necessarily what Nike wants to see.
According to Euromonitor data, the global sports footwear and apparel market will reach $371.73 billion in 2022. According to the research report of GF Securities, the retail sales of China's sports shoes and apparel industry will reach 362.68 billion yuan in 2022, with a compound annual growth rate of 11.7% from 2015 to 2022, much higher than the compound annual growth rate of 2.8% in China's overall footwear and apparel industry in the same period.
At present, domestic outdoor sports are still in the early stage of development, the penetration rate is far lower than the level of developed countries, and the potential market size is huge. According to the "Outdoor Sports Industry Plan (2022-2025)" jointly issued by the General Administration of Sports of China and the National Development and Reform Commission, the number of outdoor sports participants in China will reach 400 million in 2021; The penetration rate of China's outdoor sports market is about 28%, which is still far behind the penetration rate of more than 50% in developed countries.
A large and well-structured market inevitably contains many opportunities. From the perspective of changes in industry demand, the consumption of sports shoes and clothing shows the "four modernizations" trend of consumer stratification, scene segmentation, functional specialization, and personalization. New scenarios and new track opportunities are emerging, and outdoor, children's, women's and other markets are growing rapidly.
In this process, consumers' perception of sportswear brands tends to mature. Over the past decade, the leading sports footwear and apparel brands in the Chinese market have shown a strong "siphon effect", with the industry's CR5 market share increasing from 44.5% in 2011 to 57.1% in 2022. The market share of domestic sports brands increased from 24.6% in 2013 to 38.3% in 2022.
According to the Guosen Securities Research Report, during the Double 11 period in 2023, Chinese brands occupy three of the top 5 sports brands on Tmall, namely FILA, Anta and Li Ning. In this context, when Nike fights a "defensive war", it will inevitably provide an opportunity for China's leading sports brands to fight an "offensive war".
Taking ANTA Sports as an example, in October 2023, it released its development plan for the next three years (2024-2026). In the next three years, the Group is committed to maintaining double-digit growth in the turnover of the ANTA brand, the FILA brand will achieve the goal of 40 billion to 50 billion yuan, and the Descente brand and KOLON Sports will strive to build the third 10 billion brand of the Group.
Nike's fierce battle in the Greater China market is destined to be difficult, and the company has withdrawn its fist in order to fight more forcefully, or it is not known whether it will decline, but someone in the capital market has already cast "votes".