Things went from bad to worse for Nike (NKE 0.07%) last month as the struggling sportswear giant posted disappointing results in its fiscal third-quarter earnings report and warned that its performance would get even worse in the fourth quarter.
The blue chip stock fell to a seven-year low as it continues to lose market share to faster-growing upstart brands like Deckers' HOKA and On Holdings and investors grow impatient with the turnaround strategy under new CEO Elliott Hill.
Additionally, the company is facing macroeconomic pressure around tariffs and weak consumer discretionary spending. As a result, the stock lost 20% in March, according to data from S&P Global Market Intelligence.
As you can see from the chart below, the stock declined over the entire month, but the descent accelerated after the earnings report.
Nike's problems continue
Nike actually beat analyst estimates in the quarter, but that was little consolation to investors amid the declines in revenue and profit, and its guidance also called for its performance to get worse in the fourth quarter.
Revenue in the third quarter fell 9% to $11.3 billion, while earnings per share tumbled 30% from $0.77 to $0.54. Gross margin declined from 44.8% to 41.5% as the company attempted to clear inventory in legacy classic styles like Dunks to reestablish its full-price strategy.
Management expects its performance to trough in the fourth quarter, declining around 14%, and gross margin to fall 400 to 500 basis points, showing profits will be down sharply.
There were some silver linings in the quarter. The company returned to growth in running, touting strong demand for the new Pegasus Premium, and Japan and Latin America returned to growth, despite an overall decline in revenue in the Asia-Pacific Latin America region.
Management also noted a challenging macroeconomic environment, a sign that a turnaround could take longer than expected.
Image source: Getty Images.
What's next for Nike
The investor frustration with the stock is clearly understandable, but CEO Elliott Hill seems to have the right strategy to drive a turnaround in the business. The company is reestablishing relationships with its wholesale partners, and investing in performance product, seeing sports and performance gear as a halo for the brand.
Nike still dominates basketball and it has unrivaled roster of sponsor athletes. The company should eventually get back on track, but it's hard to consider buying the stock while its earnings are plunging.
