By Sabela Ojea
Nike expects revenue to fall significantly and pressure gross margins in its fiscal third quarter as it puts in place a plan to turn around its digital business to tackle heavy discounting over the medium term.
The sportswear brand on Thursday said its restructuring plan would create desirability for its products, but have an effect on its results over the next two quarters and, especially, in its fiscal fourth quarter.
For the fiscal third quarter, Nike expects revenue to be down low double digits despite the benefits from Cyber Week and more than the 7.7% decline expected by FactSet, and gross margins to decline between 300 basis points and 350 basis points.
In the second quarter ended Nov. 30, Nike posted a drop in revenue of 8%. Overall for the period, Nike also logged a decline in profit, but made progress in its wholesale business.
Nike's turnaround plan would be mainly focused on Nike Digital, Finance Chief Matthew Friend said on a call with analysts.
The company is shifting Nike Digital to a pull-price model, acknowledging that it had become a platform that Nike used to capture demand and compete with its wholesale partners rather than creating and growing demand for its brands.
At the same time, Nike plans to push seasonal newness further through additional discounts to win back shelf space, and target a significant reduction in weeks of supply of its classic footwear franchises over the next few seasons.
As a result, its summer order books will be down from the prior year, Friend added.
"Prioritizing Nike digital revenue has impacted the health of our marketplaces," Chief Executive Elliott Hill said. "We will build back an integrated marketplace across Nike direct and wholesale."
Nike's outlook comes as the company seeks to recapture growth with Hill at the helm following years of missteps under the leadership of John Donahoe.
Write to Sabela Ojea at sabela.ojea@wsj.com
(END) Dow Jones Newswires
12-19-24 1919ET