Nike reported fourth-quarter results after market close Thursday
Nike Inc. is entering a transitional year, say analysts, after the athletic-wear giant tempered its outlook amid wobbling consumer demand.
Speaking on a conference call to discuss Nike’s (NKE) fourth-quarter results Thursday, CEO John Donahoe said said the company saw strong gains in performance products, although this was more than offset by declines in Nike’s lifestyle segment. These declines, he added, had “a pronounced impact” on Nike’s digital results. “These factors when combined with increased macro uncertainty and worsening foreign exchange have caused us to reduce our guidance for FY2025,” he added.
“NKE’s 4Q24 print was very choppy, and the challenges facing the company are clearly more impactful than we (or management) expected,” wrote Wedbush analyst Tom Nikic, in a note released Friday. “After the company missed Q4 sales and meaningfully cut FY25 guidance, shares are likely to open meaningfully lower on Friday.”
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Nike shares tumbled on the company’s fourth-quarter results and are down 15.4% in premarket trades. “We doubt many investors will view this as a ‘buy the pullback’ event, and we think NKE shares are headed for a stay in the proverbial penalty box until new product innovations actually start to manifest themselves and management regains investor trust,” wrote Wedbush’s Nikic. “We remain at Outperform due to our expectation that NKE will eventually ‘figure it out’, but our conviction in our thesis has certainly taken a hit.” Wedbush lowered its Nike price target to $97 from $115.
Analysts say that that Nike is entering a period of transition. “FY25 will be a transitional year with significantly softer performance than we anticipated and what NKE planned 3 months ago,” wrote Raymond James analyst Rick B. Patel, in a note released Friday. In particular, Raymond James cited weakness in lifestyle products, worsening global macro headwinds, and a foreign exchange hit.
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“One could argue Nike kitchen-sinked FY25, but we don’t have confidence on upside to revenue (most critical factor) given increasingly tough macro,” added Patel, pointing to widespread reports of consumer softness, from Levi Strauss & Co. (LEVI), to Walgreens Boots Alliance Inc. (WBA) and General Mills Inc. (GIS). The analyst also cited unfavorable channel mix and China volatility. Raymond James downgraded Nike to market perform from outperform.
KeyBanc Capital Markets analyst Ashley Owens also expects fiscal year 25 to be a transition year for Nike, as the company navigates the pullback of top franchises for lifecycle management, balancing wholesale and direct-to-consumer, kickstarting product newness and 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,” she added.
However, Owens noted Nike’s new “Speed Lane” priority to accelerate product creation and its goal of doubling the business contribution from new products by the end of fiscal 2025. “Additionally, NKE noted headcount actions are complete, and looks to other areas for savings, planning to reallocate $1B to invest in consumer-facing activities in FY25 to help support top line,” the analyst added. “Though channel mix shift and franchise mgmt will challenge the next few quarters, we think balancing product offerings, channels, and price points could help NKE be more competitive LT [long term].” KeyBanc Capital Markets maintained its sector weight rating for Nike.
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During the fourth-quarter conference call Nike CEO Donahoe said that the company is harnessing Speed Lane and its Bowerman Footwear Lab to accelerate design, as well as digital tools to speed up development. The athletic-wear giant is also working with manufacturing partners to speed up product testing and production, he added, and has already accelerated half a dozen models through the new capability.
Of 40 analysts surveyed by FactSet, 22 have an overweight or buy rating, 15 have a hold rating, and three have a sell rating for Nike.
Stifel downgraded Nike to hold and lowered its price target to $88 from $117 late Thursday. “The FY25 guide (the 5th downward consensus revision in 6 quarters), pushes prospects for growth inflection further into 2025 (perhaps FY4Q or spring ’25 at the earliest) asking investors to both underwrite success of not yet proven styles and look across an uncertain consumer discretionary backdrop into 2HCY24 until momentum could build again into 2HCY25,” wrote Stifel analyst Jim Duffy. “Management credibility is severely challenged and potential for C-level regime change adds further uncertainty.”
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Nike shares are down 13.2% in 2024, compared with the S&P 500 index’s SPX gain of 15%.
Bill Peters contributed.