Nike's second quarter performance exceeded market expectations, but it is still far from getting out of the mire, with a warning that the revenue decline in the third quarter will exceed double digits.

The latest Earnings Reports show:

Nike's second quarter (the three months ending November 30) Net income decreased by 7.7% year-on-year to $12.35 billion, exceeding the Analyst expectation of $12.13 billion;

Net profit decreased by 25.6% year-on-year to $1.16 billion, which translates to $0.78 per share, also surpassing Analyst expectations.

After the report was released, Nike's stock price immediately soared by 11%, but after the CEO made a pessimistic statement, the stock price gave back most of its gains. So far this year, Nike's stock price has fallen by nearly 30%.

Hill pledged to refocus Nike's business on Sports and sell more products at High Stock Price, aiming to get Nike back on track, but he added that "this shift requires time."

According to the Earnings Reports, Nike's sales in physical stores and online fell by 13%, and wholesale revenue decreased by 3%. Significant discounts led to a 1 percentage point drop in gross margin to 43.6%, slightly above the 43.3% anticipated by Street Account Analysts.

In terms of market segments, Nike experienced varying degrees of sales decline in four international markets, with North America down 8%, Europe, the Middle East and Africa down 7%, and Asia-Pacific and Latin America down 3%.

Release all bad news and rebuild from a low starting point.

I found that Nike's direct traffic (both online and physical) has declined because our products lack novelty and have not provided inspiring stories, Hill said on the conference call, "As a result, we over-promoted... entering this year, the full-price and promotional sales ratio on our digital platforms was roughly 50/50. The extent of discounts affected not only our brand but disrupted the entire market and the profitability of our partners."

Therefore, Nike expects gross margin during the holiday season to decline by 3 to 3.5 percentage points. Additionally, Nike also anticipates a double-digit sales decline, which is worse than Wall Street's expectations.

Hill harshly condemned the strategy undertaken by his predecessor John Donahoe during his tenure as CEO.

He stated that the company invested too many resources to drive online sales, pay for performance marketing, and isolate wholesale partners - he now plans to cancel these strategies. He acknowledged that key wholesale partners believe Nike has abandoned these relationships and stated that the company is currently working to rebuild their trust.

We know that our sales team must earn every cent of "open purchases," but our investment is to ensure that our partners feel supported," Hill said. "What we do is not just sell our products. We will actively support mutually beneficial sales. In short, we only profit when our partners profit.

The question is, if the performance is not as bad as the outside world imagines, why does the management continue to release pessimistic signals?

A previous article by Wall Street Insights pointed out that Nike's new management may be adopting a financial strategy known as "kitchen-sink." This strategy means the company discloses all possible negative information and losses at once within a certain period, in order to show better performance in future Earnings Reports. This is somewhat similar to the purpose of "financial cleansing" in A-shared listed companies.

Instead of stubbornly sticking to unrealistic goals and repeatedly disappointing investors with misses, pausing guidance and replacing it with achievable goals is considered wise.

Hill interned at Nike in the 1980s and left the company in 2020. The primary issue before him now is how to reverse the decline of this Global leading Sports Outfits company. For a long time, Nike has fallen behind in innovation, and its sales strategies have failed one after another, handing over market share to competitors.

I have an inexplicable love for this company. I know Nike inside and out, am proud of what the brand represents, and want to see the company succeed," Hill said. "At a time when our team, brand, and Business are facing challenges, my only focus is to help us get back on track and achieve victory.