Nike: 1Q27 Immediate Call Postmortem
The story they want to tell is that the performance business is amazing and its just an intentional decision to fix China combined with some undisclosed reason for why Sportswear remains terrible despite years of trying to fix it. There is enough meat to keep bulls interested because of all the great performance commentary as that product is what Elliott focused on earliest in his tenure. Bears will say Sportswear is an albatross and they just don’t sound like they understand it as well as they should (even despite the new “plan”).
But it’s also fairly easy to create a narrative that Elliott Hill spent his first year on the job avoiding tough decisions, whether that’s true or not. I just don’t know how I am supposed to listen to his optimism about how fast the new China team is moving with urgency when Elliott himself clearly didn’t do that. Death by a thousand cuts as opposed to ripping off the Band-Aid but maybe this new Pace initiative is the large action that has been missing. Its clear why they brought in Dave Denton as CFO as nobody at this company has restructuring credibility (even though he joined after the plan was created).
Maximum savings of Pace will accrue in FY29 and FY30. Great – they are going to change the geographic segments once again, so we no longer have any history to compare to. This follows them ending the annual disclosure for revenue by business (men’s, women’s, Brand Jordan, etc). Would be a lot easier to swallow all their statements on how awesome performance is if they consistently gave sportswear revenue like they used to back in FY20.
At least we got it for this quarter - Sportswear half this quarter’s revenue and down low double digits. Reduced revenue from Dunk by ~50% in the quarter, which is about $200 million (as planned). Some other higher volume sportswear sold below expectations. AF1 is now a stable full price business. Handful of sportswear franchises have scaled and grew strong double digits (P6000, V5).
Elliot mentioned that “this big business called sportswear” is one thing he probably did under appreciate. They are breaking down Sportswear into segments that focus on distinct consumers, which will provide greater clarity for those consumers.
The plan for Jordan is to get back to scarcity. In Q1 Jordan was 13% of revenue, but down mid teens. North America will feel the biggest impact.
Pace will accelerate the sport offense. “The sport offense has proven itself” – eh, its hard to see that from the outside since you keep missing revenue and lowering guidance. Performance delivered broad growth and was up HSD in Q1. This was on top of MSD growth in FY26. Seeing good sell through in North America at all sorts of retailers such as Dick’s Sporting Goods, Academy Sports, etc.
Running up double digits again with consistent share gains (nearly tripled share of max cushioning category over past year - I imagine from a low base). Basketball up double digits in NA. Tennis and golf up double digits. This just begs the question that if Nike is so strong in all these sports, then what is the major malfunction with Sportswear?
“Anchoring on fewer flagships in China”. That sounds more like a retreat and not a resetting. “Its just going to take us some time resetting the marketplace.” Guidance assumes China gets worse. Bears like to say the brand just doesn’t resonate in the country anymore. As an aside I visited the Hong Kong flagship in July and it was terrible brand experience – felt like a Kmart that was going out of business. Entire store was on sale. Asked the employee, who clearly was not happy, if they were closing and they said “yes, but they wont tell us when”. Don’t know why they don’t just close the store and clear that inventory through outlet instead.
Poser with some great questions about sub $100 product and speed to market. Elliott said that business cuts across all performance sports and sportswear. They will talk more about the current 18 month product lead time at the investor day next month.
Am I supposed to be impressed that global football had strong double digit growth in all four geos during a World Cup that compares against a non World Cup year? Same thing with club kits being up high teens. The entire performance business running up HSD so those numbers really don’t seem too great given the magnitude of that event.
Investor day will provide what FY27 will look like as well as an algo for the next five years from both a top and bottom line perspective – I certainly hope so but the question is will people believe it?
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back afterwards with much more in depth work on what was mentioned. You can find that work (and more on Nike and other retail/consumer research) at our website here: M Squared Capital
Originally posted on X and Substack.