Nike has high hopes for the upcoming Air Max Dn

While Nike’s third-quarter numbers met Wall Street’s expectations, the company introduced a series of major strategic shifts, hoping to regain momentum.

Among the company’s frank admissions? Its current brand marketing is neither bold nor distinctive enough, its products aren’t innovative enough, and it has lost focus on sport. It also says that while Nike Direct, including ecommerce, mobile sales and Nike stores, “will continue to play a critical role, we must lean in with our wholesale partners to elevate our brand and grow the total marketplace,” says John Donahoe, chief executive officer, on a call webcast for investors.

For the third quarter of the fiscal year, Nike’s revenues were virtually flat at $12.43 billion, compared to $12.39 billion in 2022.

Nike Direct revenues rose a bit to $5.4 billion. Wholesale revenues climbed 3% to $6.6 billion. Nike Brand Digital sales fell 3%. Footwear sales added 2% to $8.16 billion, while apparel revenues dipped 3% to $3.29 billion.

Sales of Converse plummeted 19% to $495 million.

Nike’s net income dropped 5% to $1.17 billion from $1.24 billion.

The company spent $1 billion in the quarter to create demand, a 10% increase, reflecting higher marketing expenses.

Donahue assured investors the company is already making many of these changes.

“We’re well on our way to building a multiyear cycle of innovation that’s bringing freshness and newness to consumers,” he said. “We’ve pulled forward several innovations more than a year and we intend to delight consumers and disrupt the industry. Our brand storytelling will leverage our athletes and sport moments to become sharper and bolder, beginning with the Olympics this summer.”

That includes sharpening that brand storytelling “to tell fewer, bigger stories with greater reach,” adds Matt Friend, Nike’s chief financial officer. “We will focus our demand creation investments to elevate our brand and most distinctive products – leading with the voice of the athlete, amplifying innovation, and engaging consumers at point of sale. As we look forward, we see our Olympics “Air for Athletes” campaign as the boldest expression of Nike’s brand voice in many years.”

Some observers agree but note that these strategic shifts won’t result in higher sales overnight.

“Nike is taking the right actions to evolve its distribution strategy, accelerate innovation, and prioritize brand/franchise health,” writes Jonathan Komp, who follows Nike for Baird. But those investments will likely result in a sales decline in the low-single digits for the first half of next year. “Patience is required,” he says.

“This outlook suggests that subpar consumer demand for sportswear in North America, China, and other key markets is likely to persist longer than many industry participants have anticipated,” writes David Swartz, who follows Nike for Morningstar. “Even so, we think investments in products, marketing, and its supply chain will allow it to regain lost share and outpace market growth when sportswear demand improves.”

Lululemon also released quarterly results, proving that consumers are happy to spend when the product is right. Lulu’s fourth-quarter revenue jumped 16% to $3.21 billion from $2.77 billion in the prior year's fourth quarter. For fiscal 2023, sales jumped 19% to $9.62 billion, up from $8.11 billion in fiscal 2022.

Net income surged to $669.5 million, up from $119.8 million.

Lululemon’s sales gains are strongest internationally, up 78% in China and 36% in the rest of the world. Sales rose 9% in the Americas, less than some experts predicted. Mark Altschwager, who follows the athleisure brand for Baird, says that’s “disappointing, given Lululemon’s consistent ability to stay above the macro fray in recent years.” But he’s hopeful about the company’s “full innovation pipeline, ramping marketing initiatives and strong international momentum.”