Core Viewpoint - Nike's shares have significantly declined as investors express concerns over new CEO Elliott Hill's turnaround strategy, particularly after the company warned of potential double-digit sales drops [1][2]. Sales Performance - Nike reported a 9% sales decline during the holiday season quarter, with a notable 17% slump in quarterly sales in China [1]. - The company anticipates a sales decrease in the "mid-teens range" for the quarter ending in May, exceeding Wall Street's expectation of an 11.4% decline [2]. Strategic Initiatives - CEO Elliott Hill has introduced a "Win Now" strategy aimed at regaining market share, focusing on enhancing presence in key cities like Shanghai and Beijing [4]. - The company is attempting to revive its sales strategy by re-engaging with traditional retailers after previously reducing their number [9][10]. Market Challenges - Nike faces challenges from weak consumer demand, a turnaround that has yet to yield results, and the impact of a 20% tariff on goods from China implemented in March [6][8]. - The company is also navigating external factors such as geopolitical dynamics, volatile foreign exchange rates, and tax regulations that affect consumer confidence [8]. Competitive Landscape - Nike is encountering stiff competition from emerging brands like Hoka and On, prompting the company to adapt its strategies to maintain market relevance [9][12]. - The company has launched new products, such as the Pegasus Premium and Vomero 18, to address previous management's missteps regarding product innovation [12].

Financial Data and Key Metrics Changes - The company reported a 6% increase in net sales for Q4 2024, reaching $215 million compared to $203 million in the same period last year [6][30] - Gross margin expanded by 130 basis points to 37.7% from 36.4% year-over-year [6][32] - Net income for Q4 2024 was $8.9 million or $0.41 per diluted share, up from $2.7 million or $0.13 per diluted share in Q4 2023 [29] Business Line Data and Key Metrics Changes - U.S. segment sales increased by 5.8% to $196 million, driven by online sales strategy and market share gains [30] - E-commerce sales grew by 9% to $51.5 million in Q4, contributing to 24% of total sales for the quarter [9][30] - International segment sales rose by 7.2% to $19.2 million, with significant growth in e-commerce and UK nationals [31] Market Data and Key Metrics Changes - The company experienced a decline in the mass channel, particularly affecting the KitchenAid brand, which impacted overall performance [39] - E-commerce sales in the U.S. reported a second consecutive quarter of double-digit growth, increasing by 10% year-over-year [9] Company Strategy and Development Direction - The company is focusing on organic growth through the Dolly Parton program, expecting to double sales from $7 million in 2024 [11][12] - Project Concorde was launched to streamline international operations and improve profitability, with a target to reach breakeven by 2026 [25][26] - The company is relocating its East Coast distribution center to Maryland to enhance operational efficiency and reduce costs [19][20] Management Comments on Operating Environment and Future Outlook - Management noted a cautious consumer sentiment due to macroeconomic uncertainties and inflation, but remains optimistic about the resilience of the business model [10][27] - The company anticipates continued growth in the foodservice business and international segment, despite potential economic headwinds [54] Other Important Information - The company generated free cash flow of $16.3 million for the full year 2024, net of planned inventory increases to mitigate tariff risks [36] - The effective tax rate for 2024 was reported at 75.5%, influenced by foreign losses and state taxes [35] Q&A Session Summary Question: Can you provide more detail about the mass channel softness? - Management indicated that the mass channel experienced a loss of share in the KitchenAid brand, which negatively impacted performance [39] Question: What is the current exposure to China regarding tariffs? - The majority of production is still in China, but the company aims to reduce this significantly by the end of 2025 [42][53] Question: What is the expected operating loss for the international segment? - The EBITDA loss for the international segment was just under $10 million, with a goal to reach breakeven by 2026 [46] Question: Can you quantify tariff exposure? - The company is looking to reduce its reliance on China, with plans to move over 50% of production outside of China by the end of 2025 [52] Question: What brands performed well last year? - Brands like Farberware and Macasa saw growth, while Taylor and FalseCraft faced declines, with plans to revitalize the latter [60][61]

Financial Data and Key Metrics Changes - Fourth quarter net sales from continuing operations were $2 billion, a 1% decrease compared to Q4 last year, with comparable stores also declining by 1% [43] - Adjusted gross profit from continuing operations was $779 million, representing 39% of net sales, resulting in a gross margin contraction of 170 basis points compared to last year [46] - Adjusted operating loss from continuing operations was $99 million, or negative 5% of net sales, with adjusted diluted loss per share from continuing operations at $1.18 compared to a loss of $0.45 per share in the prior year [47] Business Line Data and Key Metrics Changes - Comparable sales performance was stronger in the second half of Q4, particularly in December, driven by demand for failure-related items such as batteries [44] - Pro channel performance was slightly negative but outperformed the DIY channel, which declined in the low single-digit range [44] - Average ticket grew in the low single-digit range and was positive in both channels, with strength seen in filters and fluids while discretionary categories remained pressured [45] Market Data and Key Metrics Changes - Full year net sales from continuing operations were $9.1 billion, a 1% decrease compared to last year, with full year comparable store sales declining by 70 basis points [49] - Pro channel performance for the full year was positive, while DIY declined in the low single-digit range [50] - The consumer spending environment showed overall softness, impacting maintenance item spending across the industry in 2024 [50] Company Strategy and Development Direction - The company introduced a three-year strategic plan focused on executing the basics to achieve adjusted operating margins of approximately 7% by 2027 [9] - Key strategic pillars include merchandising, supply chain, and store operations, with specific plans implemented to drive progress over the next three years [16] - The company is committed to improving operational efficiency through store closures and optimizing its asset base for growth [8][34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future opportunities for value creation despite a challenging year [9] - The company expects results to gradually improve as strategic initiatives take hold, with a focus on improving parts availability and customer service levels [61] - Management acknowledged the impact of external factors such as consumer spending pressures and weather on sales performance [132] Other Important Information - The company ended the year with approximately $1.9 billion in cash, bolstered by proceeds from the Worldpac sale [57] - The company plans to open 30 new stores in 2025, contributing to net sales growth [62] - A significant focus is placed on improving supply chain efficiency and reducing costs associated with store closures [64] Q&A Session Summary Question: Can you talk about the new merchandise assortment impacting 70% of your volume? - The company is focusing on store-based availability and ensuring the right parts are in stock based on the vehicles in operation, rather than relying on self-solved inventory across stores [84][85] Question: Can you discuss the reporting dynamics of one-time versus not one-time costs? - Atypical items are those that occur within the quarter but are not expected to reflect ongoing business, while adjustments to non-GAAP results are tied to strategic initiatives [92] Question: Can you elaborate on the 7% EBIT margin goal for 2027? - The target is based on achieving mid-40s gross margin and below 40% SG&A as a percentage of sales, with significant improvements expected from merchandising and supply chain initiatives [101][102] Question: How much progress is being made in improving costs with vendors? - The company is seeing positive movement in both cost improvements and promotional pricing, with benefits expected to materialize throughout the year [112][113] Question: What is driving the volatility in the first quarter? - Weather conditions and delayed tax refunds are contributing to sales volatility, alongside pressures on consumer spending [131][132]