Analysts overhaul Nike stock price targets after Q4 earnings

Nike's ongoing turnaround hit a major speedbump last night.

Jun 28, 2024 - 19:30

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Analysts overhaul Nike stock price targets after Q4 earnings

Updated at 9:17 AM EDT

Nike shares slumped lower in early Friday trading, setting up the stock for a loss of around $21 billion, after the world's biggest sportswear group issued a gloomy near-term sales forecasts that could test investor patience for its ongoing turnaround strategy.

Nike (NKE) , which is facing a host of new market challengers in the footwear space while also fending-off a resurgent Adidas in overseas markets, launched a $2 billion cost-cutting plan last year under CEO John Donahoe aimed at boosting the group's underlying profit margins and reviving its moribund store sales.

The group had also been hoping that a summer of high-profile sporting events, including the Paris Olympics, and the Euro 2024 soccer championships, would help it win back its share of sales in key global markets, including China, following a muted revenue outlook issued earlier this year.

However, sales for the three months ending in March, the group's fiscal fourth quarter, fell 2% from last year to $12.61 billion, coming in shy of the Street's $12.8 billion forecast.

Overall earnings were modestly firmer, rising 48% from last year to 99 cents per share, but gross margins fell shy of Wall Street forecasts as Nike used big promotional price cuts to shift some aging merchandise.

Looking into the coming financial year, Nike forecast a double-digit slump in overall revenues, against the Street consensus of a 1% gain, in what it called a "transition year for our business".

Along with Adidas, Nike is facing a host of new rivals in key sports markets, forcing the group to shift its sales focus amid changing consumer demand.
TheStreet

"We are managing a product cycle transition with complexity amplified by shifting channel mix dynamics (and) a comeback at this scale takes time," said finance chief Matthew Friend.

Friend also cited "increased macro uncertainty, particularly in Greater China, with uneven consumer trends continuing in (Europe) and other markets around the world.

Nike sees big sales decline

"Taking all of this into consideration, we now expect fiscal '25 reported revenue to be down mid-single digits with the first half down high single digits," he said.

KeyBanc Capital Markets analyst Ashely Owens agrees with Nike's "transition year" characterization, adding that it will navigate a "pullback of top franchises for lifecycle management, balancing wholesale/direct-to-consumer, kickstarting product newness/ innovation, and investing behind brand marketing."

"We think the above dynamics coupled with a challenging macro will continue to pressure results for the next couple of quarters," said Owens, who carries a 'sector weight' rating on the stock.

Analysts on Wall Street, who were uniformly disappointed with both last night's results and the gloomy near-term outlook, lined up to overhaul their Nike ratings and price targets.

Morgan Stanley analyst Alex Straton, who downgraded his rating on the stock to 'equal weight' from 'overweight', questioned the group's near-term path to profitability.

Nike 's path to profitability 'unclear'

"Nike's long-term growth and profitability remain 'unclear' as the company undergoes strategic changes and faces macro headwinds," said Straton, who also lowered his price target by $35, to $79 per share.

"Our prior 'overweight' rating was predicated on a fiscal H2 revenue and profit inflection," he added. "After Nike's Q4 & guidance, that is now out of view."

TD Cowen analyst John Kernan, who lowered his price target by $6 to $75 per share, wondered if "the good days are over" for the sportswear group.

“Nike has become over exposed to mid-tier, fashion-based trends that are being disrupted by more premium based brands," Kernan and his team wrote. "The concept of being all things to all consumers in the sector is effectively over and Nike management needs to pivot.”

Stifel analyst Jim Duffy, meanwhile, questioned the state of Nike's current leadership as he lowered his Nike price target by $29 to $88 per share.

"Management credibility is severely challenged, and potential for C-level regime change adds further uncertainty," said Duffy.

"We appreciate Nike's scale advantage and structural margin potential, but at the current valuation, we can't support a compelling upside case until growth inflection becomes more tangible," he added.

Nike shares a major Dow laggard

Other changes came from JPMorgan analyst Matthew Boss, who lowered his rating on Nike to 'neutral' from 'overweight' and slashed his price target by $32 to $83 per share.

Truist Securities analyst Joseph Civello cut his Nike price target to $81, an $18 reduction from his prior objective, while UBS's Jay Sole lowered his to $78 and cut his rating to 'neutral' from 'buy'.

"Nike's 4Q report indicated its fundamental trends are much worse than we realized," said Sole. "Our key conclusion is there will be no quick rebound for Nike's earnings."

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Nike shares were marked 16.4% lower in premarket trading to indicate an opening bell price of $78.76 each, a move that would extend the stock's year-to-date decline toa round 28%.

Shares in the group, a Dow 30 component, have lagged the broader benchmark for much of the past five years, falling 15% compared to a 47.2% gain for the overall Average.

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