In a sharp decline, Nike's stock tumbled by 11% in after-hours trading on Thursday following the company's announcement that it expects a decline in revenue greater than anticipated for the upcoming year. The sportswear retailer foresees a mid-single digit drop in revenue for 2025, including a projected 10% decrease in the first quarter. This comes as a surprise, considering Nike had previously guided for overall sales growth in 2025.

The company's guidance aligns with the trend observed in Nike's fiscal 2024 fourth quarter, which it reported after the market had closed on Thursday. Quarterly revenue for the fourth quarter witnessed a 2% decrease compared to the previous year, amounting to $12.61 billion. This figure fell short of Wall Street's estimated $12.86 billion. Nevertheless, Nike surpassed analysts' expectations with earnings per share of $0.99, outperforming the projected $0.66.

A significant contributing factor to the decline was Nike's direct-to-consumer sales, which dropped 8% to $5.1 billion when compared to the same quarter last year. Nike CEO John Donahoe acknowledged that fiscal year 2025 would be a transitional period for the business during the company's earnings call.

The underwhelming sales numbers have raised concerns among experts, with Morningstar equity analyst David Swartz noting that the figures were "pretty weak." Nike's gross margins, however, increased to 44.7% in the fourth quarter, up from 43.6% in the same period the previous year. Nonetheless, it fell short of analyst expectations of 45.3%.

Over the past year, Nike's stock has plummeted by more than 17%, a stark contrast to the S&P 500's 26% gain. Investors have grown increasingly cautious of the retailer's slowing growth. Wedbush's senior vice president of equity research, Tom Nikic, expressed his concerns in a note, stating that investor patience with management is dwindling.

As Nike faces competition in its core athletic footwear market from rivals like Adidas and emerging brands like On and Deckers' Hoka brand, Wall Street is eagerly monitoring Nike's product pipeline. Executives at Nike reassured investors that their plans to introduce new products are progressing as expected and will start impacting the company's financials by the end of the year.

Despite the challenges ahead, Nike remains optimistic about its ability to regain momentum and overcome the obstacles it currently faces.