Nike Stock Falls to 52-Week Lows after Disappointing Earnings
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Nike stock, which was anyways having a rough ride in 2024 looks fell to its 52-week lows in today’s price action after the company’s fiscal Q4 2024 revenues fell short of analysts’ estimates. To make things worse, its guidance also took a toll on sentiments.
Nike reported revenues of $12.6 billion in the fiscal fourth quarter that ended in May. The company’s sales fell 2% YoY in the quarter and fell short of the $12.84 billion that analysts expected.
In the full fiscal year, Nike’s revenues were $51.4 billion which is only marginally higher than the previous year. It was the worst revenue growth that Nilke has witnessed since 2010, after excluding 2020 when the COVID-19 pandemic took a toll on its sales.
During the earnings call, Nike’s CEO John Donahoe said that the company “saw strong gains within performance product. However, this was more than offset by declines in lifestyle.” The company said that these factors had a “pronounced impact on our digital results” – a segment that it has been banking on for the last few years.
Nike Stock Plummets on Revenue Miss
While Nike’s revenues fell short of estimates, the company’s per-share earnings of $1.01 was ahead of the 83 cents that analysts were expecting. Meanwhile, Nike cut its guidance and expects sales to fall 10% in the current quarter which is far worse than the 3.2% decline that analysts were modeling.
Commenting on the guidance, Nike’s CFO Matthew Friend said, “We are managing a product cycle transition with complexity amplified by shifting channel mix dynamics.” He blamed “increased macro uncertainty, particularly in Greater China, with uneven consumer trends continuing in EMEA and other markets around the world.”
Analysts Slash Nike Target Price
After Nike’s dismal earnings report, several analysts downgraded the stock and lowered their target prices. Stifel downgraded NKE stock from a buy to hold and lowered its target price from $117 to $88.
In his note analyst Jim Duffy said, “Management credibility is severely challenged and potential for C-level regime change adds further uncertainty.”
He added, “We remain appreciative of NIKE’s scale advantage in a category with secular growth tailwinds and structural margin potential but, at the current valuation, can’t support a compelling upside case until growth inflection becomes more tangible.”
UBS analyst Jay Sole also downgraded Nike’s target price from $125 to $78 and said “Nike’s 4Q report indicated its fundamental trends are much worse than we realized. Our key conclusion is there will be no quick rebound for Nike’s earnings.”
Nike’s Guidance Disappoints Markets
TD Cowen analyst John Kernan also lowered Nike’s target price to $75 and wondered if “the good days are over” for the company.
In its note, Cowen said, “Nike has become over-exposed to mid-tier, fashion-based trends that are being disrupted by more premium-based brands.” The note added, “The concept of being all things to all consumers in the sector is effectively over, and Nike management needs to pivot.”
Wells Fargo analyst Ike Boruchow however reiterated his overweight rating on NKE stock but lowered his target price from $115 to $92.
In his note, Boruchow said “FY25 was reset for the 2nd time in 3 months—as the digital weakness continued into 1Q, while the pacing to manage key franchises is being accelerated. Simply put, it’s difficult to find any good news in today’s release.”
Did NKE’s Business Strategy Backfired?
Some analysts are also questioning whether Nike’s strategy of cutting down wholesale sales to focus on direct channels including online sales has backfired. The strategy would have helped Nike increase its margins but as the disappointing revenue performance shows it is hitting the topline. Nike has since started to retract that strategy admitting it went too far with the initiative.
Meanwhile, after the fall today NKE is now near the price levels last seen during the COVID-19 pandemic when stock markets globally plummeted.
Nike stock peaked in late 2021 and has since lost over half of its market cap. While the company is taking several actions including cutting down costs these don’t seem to cut ice with markets as its dismal price action suggests.
