Nike (NYSE:NKE) shares dropped significantly in early Friday trading, poised to lose around $21 billion in value. This decline follows the world’s largest sportswear company’s bleak near-term sales forecast, which might test investors’ patience with its ongoing turnaround strategy.
Facing intense competition from new market entrants and a resurgent Adidas in international markets, Nike launched a $2 billion cost-cutting initiative last year under CEO John Donahoe. This plan aims to improve profit margins and revive sluggish store sales.
Nike had hoped that a summer filled with major sporting events, including the Paris Olympics and Euro 2024 soccer championships, would help it reclaim market share in key regions like China. However, sales for the fiscal fourth quarter, ending in March, fell 2% from last year to $12.61 billion, missing Wall Street’s $12.8 billion forecast.
Although overall earnings rose 48% to 99 cents per share, gross margins were lower than expected due to significant promotional price cuts to clear old inventory. Looking ahead, Nike predicted a double-digit decline in overall revenues for the upcoming financial year, contrary to the Street’s expectation of a 1% increase, describing it as a “transition year for our business.”
Nike’s challenges include not only competition from Adidas but also a variety of new rivals in key sports markets, prompting a shift in sales strategy amid changing consumer demands.
“We are managing a product cycle transition with complexity amplified by shifting channel mix dynamics, and a comeback at this scale takes time,” said CFO Matthew Friend. He also noted “increased macro uncertainty, particularly in Greater China, with uneven consumer trends continuing in Europe and other markets worldwide.”
Nike Expects 2025 Revenue to Decline
Given these factors, Nike now expects fiscal 2025 reported revenue to decline by mid-single digits, with the first half seeing a high single-digit drop.
KeyBanc Capital Markets analyst Ashely Owens concurred with Nike’s “transition year” assessment, highlighting the company’s efforts to manage product lifecycle, balance wholesale and direct-to-consumer sales, drive product innovation, and invest in brand marketing.
“We believe the combination of these dynamics and a challenging macro environment will continue to pressure results for the next few quarters,” Owens said, maintaining a ‘sector weight’ rating on the stock.
Analysts on Wall Street, disappointed by both the Q4 results and the gloomy outlook, have revised their ratings and price targets for Nike.
Morgan Stanley analyst Alex Straton downgraded NKE to ‘equal weight’ from ‘overweight’ and questioned the company’s near-term profitability path. “Nike’s long-term growth and profitability remain ‘unclear’ as the company undergoes strategic changes and faces macro headwinds,” Straton said, lowering his price target by $35 to $79 per share.
TD Cowen analyst John Kernan reduced his price target by $6 to $75 per share, questioning if “the good days are over” for NKE. Kernan noted that Nike has become too reliant on mid-tier, fashion-based trends, which are being disrupted by more premium brands.
Stifel analyst Jim Duffy lowered his price target by $29 to $88 per share, expressing concerns about the current leadership. “Management credibility is severely challenged, and potential for C-level regime change adds further uncertainty,” Duffy said.
JPMorgan analyst Matthew Boss downgraded Nike to ‘neutral’ from ‘overweight’ and cut his price target by $32 to $83 per share. Truist Securities analyst Joseph Civello lowered his price target to $81, an $18 reduction, while UBS’s Jay Sole reduced his to $78 and downgraded the stock to ‘neutral’ from ‘buy’.
“Nike’s Q4 report indicated its fundamental trends are much worse than we realized,” Sole commented. “Our key conclusion is there will be no quick rebound for Nike’s earnings.”
Nike shares were down 14.8% in premarket trading, suggesting an opening price of $80.20 each. This drop would extend the stock’s year-to-date decline to around 26%. Over the past five years, Nike shares have lagged the broader Dow Jones Industrial Average, falling 15% compared to a 47.2% gain for the index.
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