By Sabrina Escobar
Wall Street is feeling more upbeat about Nike’s 2024 outlook — but analysts are a lot more tepid about the retailer’s earnings report coming Thursday afternoon.
Over the past few months, Street sentiment on Nike stock has been improving. Investors have rallied behind the prospect of bigger margins now that the company is seeing better freight costs and less discounting.
Just last week, Citi analyst Paul Lejuez upgraded shares of Nike to Buy from Neutral, arguing that Nike is an “attractive margin recovery story” amid a choppy macroeconomic environment. And earlier in December, Wells Fargo analyst Ike Boruchow added Nike to his top picks list, swapping out competitor Lululemon Athletica in the process.
“We simply believe the recovery characteristics and self-help story now beginning at [Nike] make for a more compelling long idea into 2024,” Boruchow wrote at the time.
But first, the company has to wrap up 2023 and report its fiscal-second-quarter earnings, due Thursday after the market close. And some analysts still see bumps in the road ahead.
“It’s also important to keep in mind that NKE isn’t yet firing on all cylinders,” wrote Wedbush analyst Tom Nikic in a note to clients.
Nikic says the company’s inventory levels are still high, leading to more discounts over Black Friday week. Meanwhile, wholesale demand for footwear in North America and Europe has been slowing, which could affect Nike’s revenue in the latest quarterly results.
Indeed, analysts predict the company’s revenue will tick up by less than 1% year-over-year to $13.4 billion in its second quarter, according to FactSet estimates.
The macroeconomic challenges will also likely prevent Nike’s management team from raising guidance, Nikic wrote. He says he wouldn’t be surprised if the stock gives back some of the gains it has made in recent weeks.
Earnings, however, might be a bright spot in the report, as Nike starts to lap some of the benefits of lower freight costs that are expected to help the company out in 2024. The company handily beat first-quarter earnings estimates, and could do so again. The Street projects Nike will turn in earnings of 84 cents a share for the quarter.
“Top-line challenges remain, but we are more optimistic about NKE’s ability to protect EPS in F24/F25 despite a choppy macro,” Citi’s Lejuez wrote.
Write to Sabrina Escobar at sabrina.escobar@barrons.com