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Nike is expected to experience a rare decline in sales as it shifts to a direct-to-consumer model


Nike is expected to see a rare decrease in sales as it transitions to a direct-to-consumer model and focuses on US demand.

Due to poor demand in North America and a slower-than-anticipated boost from its direct-to-customer (DTC) strategy.

Nike will report its first quarterly sales decrease in almost two years on Thursday.

Instead of building up inventory at wholesalers to support its margins, the sportswear behemoth has focused on expanding sales through its online and online channels.

Analysts have noted that the DTC plan has been negatively impacted by decreasing innovation for the company that makes Air Jordan sneakers and increased rivalry from more recent companies that are gaining market dominance in the running space, such as On and Decker's Hoka.

According to Morningstar analyst David Swartz, Nike's direct-to-consumer (DTC) approach could be performing better than the business had hoped. "If the products are not that popular, it doesn't matter where you sell them; people won't buy them."

At least five brokerages lowered their price targets in advance of Nike's anticipated 1% revenue fall for the third quarter following Thursday's closing bell. LSEG data indicates an expected 7% decline in profit per share to 74 cents.

Mr. Brian Mulberry, client portfolio manager at Zacks Investment Management, which owns stock in Nike, said the company is "starting to get stale" due to its lack of innovation investment and how much customers are spending on its items.

Almost all of Nike's revenue comes from wholesale, with DTC accounting for about 42% of overall sales in recent quarters.

As sportswear retailers place fewer orders due to inconsistent demand, the wholesale industry has continued to face pressure, especially in the United States.

Following the German company's first yearly loss in over 30 years, rival Adidas warned last week that its sales in North America would decline once more as American sportswear shops battle excess inventory.

The Wall Street estimates for 2024 profit were not met by retailer Foot Locker earlier this month, primarily due to a planned increase in investments across the board to encourage demand.

There are alarming reports from several companies, such as Adidas, Puma, and Under Armour, regarding the current state of the sportswear market, which could be more stable.

The industry's (prognosis) could be better, at least not for the upcoming few quarters, according to Swartz at Morningstar.

For the year, Nike's stock price has dropped by almost 8%, lagging behind the approximately 4% increase in the Dow Jones index.

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