Nike (NKE) shares will likely have a difficult time recovering ground in the short-run after the athletic footwear maker cut its yearly sales outlook, Morgan Stanley said on Friday.
The maker of Air Max, Air Jordans, and other sports shoes and accessories reduced its fiscal year revenue outlook to 1% growth, Chief Financial Officer Matthew Friend said on a conference call late Thursday, according to a Capital IQ transcript. It previously expected mid-single-digit percentage growth. Nike shares were sliding 10% to $109.67 during Friday’s session.
The “disappointing” guidance overshadowed the company’s second-quarter profitability resilience, Morgan Stanley said in a note. “We aren’t hopeful for a (near-term) stock bounce,” given Nike’s elongated and uncertain path back to high-single digit revenue growth, according to the brokerage. The company’s revised guidance also dulled its “formerly compelling” rate-of-change story in the second half of the fiscal year.
Friend said on the call that Nike’s revised outlook reflected increased macro headwinds, particularly in Greater China and Europe, the Middle East and Africa, as well as factors including digital traffic softness and higher marketplace promotions.
Morgan Stanley lowered its price target to $124 from $132 on the Nike stock while keeping its overweight rating unchanged.
The company late Thursday posted mixed results for its fiscal second quarter and said it plans to cut costs by up to $2 billion over the next three years. Earnings rose to $1.03 per share in the three months ended Nov. 30, ahead of the $0.85 expected in a Capital IQ consensus call. Revenue rose 1% to $13.39 billion but was behind the Street’s estimate of $13.43 billion.
Morgan Stanley said the share price could test a level of more than $120 if “innovation-driven green shoots emerge.”