It’s a big day ahead for Nike, Inc and its newly minted CEO Elliott Hill as the company is set to report fiscal second quarter results after the stock market closes today. The company has been wrestling with slower growth, challenges to its innovation pipeline, weakness on the lifestyle end of the footwear business, all amid challenges to the company’s retail relationships after the company made the decision to prioritize its DTC business over its retail customers, a decision that led to the company eliminating or de-allocating a number of key mid-market retailers.
NKE shares are down over 36 percent for the trailing 12-month period.
At the end of the day (literally), Wall Street expects revenue to come in at $12.13 billion for the second quarter, driven by growth of the company’s wholesale business as it works to re-fill the product pipeline with available inventory. Adjusted earnings per share are expected at 63 cents per share for the fiscal quarter ended November 30, 2024.
The Zacks Consensus Estimate for fiscal second-quarter revenues is $12.2 billion, or a 9.1 percent decline from the prior-year fiscal Q2 reported revenues. The Zacks Consensus Estimate for the company’s fiscal second-quarter earnings is 64 cents per share, indicating a decline of 37.9 percent from the year-ago reported number.
Analysts are also looking for some key indicators that the company and new CEO Hill have a clear plan to get back into growth company mode to justify the multiples it needs to trade higher going forward.
That plan has to include boosting innovation in a market that has embraced On, Hoka and a number of other nascent running brands that have taken share in the “technology as fashion” column, as well as brands such as Adidas and Asics that are taking share on the lifestyle side.
It also doesn’t help when CNBC’s Jim Cramer shouts on air Thursday morning that “no one wants Jordan anymore.”
“We noticed poor brand heat in 2Q as well, with 2Q social mentions deteriorating to -13 percent and -37 percent for Instagram and TikTok, respectively — signaling recent launches/marketing buzz were not enough to move the needle upwards for NKE just yet,” a Wells Fargo analyst wrote in a recent note to investors.
The plan must also address retailer relationships and the plan to fill the pipeline as they come online and allocations are expanded, including plans to maintain the Nike brand’s relevance even as it tries to balance discounting against the need to build revenues and bring inventory down.
The Wall Street Journal is reporting that Macy’s is discounting Nike at 30 percent off at its Herald Square location. JD Sports manages the Macy’s athletic footwear business, due to the continuation of the department store retailer’s original contract with The Finish Line.
The Nike brand may also be challenged by a weaker Greater China territory. Most recent retail numbers going out of Mainland China sees a business that has been declining since early in 2024. A plan to address those issues will also be of interest.
Analyst Notes
Wells Fargo lowered its price target for Nike, Inc. this week to $92 from $95, warning of continued headwinds for the company amid weak direct-to-consumer sales, prolonged order cuts for key products, and rising promotional activity.
The bank also lowered its revenue and earnings estimates below Wall Street consensus, projecting fiscal year 2024 EPS at $2.50, compared with analysts’ average estimate of $2.71 per share. Wells cited weaker-than-expected holiday markdowns and sluggish demand for popular franchises like Air Jordan 1 and Air Force 1.
Wells Fargo also noted that FX headwinds have grown, with supplier checks suggesting that current “Franchise Management” efforts will be extended into 2025.
Wells Fargo maintained its “overweight” rating, on Nike’s long-term prospects once strategic changes take effect.
Morgan Stanley lowered its NKE price target to $80 from $82 and kept an Equal Weight rating on the shares.
The firm expects a fiscal Q2 beat, Q3 guidance to be set below the Street view and continues to see risk to fiscal year consensus, the bank wrote in a preview note. However, analyst Alex Straton’s team said Nike’s November stock move “suggests this result is somewhat appreciated” and the firm thinks market focus is on commentary from the new CEO, not fundamentals.
Telsey Advisory Group (TAG) acknowledged that Nike is in a period of transition and a return to growth could take a few quarters.
“We believe Mr. Hill’s initial strategic view as well as the 3QF25 guidance will help determine the extent of Nike’s problems and the turnaround plan from here,” the firm wrote in a research note. “While still a small percentage of the overall portfolio, Nike’s new running product seems promising (running returned to growth in 1QF25) and newness across the product portfolio is coming in the next few quarters.”
“Looking further out, retailers have embraced the arrival of Mr. Hill and CEOs have touted their long-time relationships with Mr. Hill as well as expressed excitement about Nike’s innovation pipeline,” TAG noted, also pointing to Nike’s presentation at the recent The Running Event that unveiled a new strategy to simplify its running assortment, which the note said is “likely an early decision made by Mr. Hill.”
“All eyes will be on new CEO Elliott Hill, who started October 14, and his strategy to reinvigorate the Nike brand,” Dana Telsey wrote. “While Nike is not a company to dwell on missteps, it will be important to acknowledge Nike’s recent underperformance, while showing optimism about the future.”
TAG maintained its “Outperform” rating this week, reflecting the likelihood of a brand turnaround over the next year, but is lowering its 12-month price target to $93 from $96, based on applying a P/E multiple of ~30x to its lowered FY26 EPS estimate of $3.10 (down from $3.20). This P/E multiple is close to where the stock trades on FY25 EPS estimates.
Citibank expects second quarter EPS of 58 cents versus the consensus estimate for 64 cents, driven by weaker gross margins.
“Investor uncertainty is high given this is new CEO Elliott Hill’s first call w/investors and some of NKE’s key retailers have called out elevated promos across the marketplace,” Paul Lejuez and his team wrote in a note last Friday. “Under new leadership, we believe NKE is being more aggressive clearing through excess inventory in key classics franchises, likely resulting in near-term GM pain and further F25 cons est reductions (cons $2.78 vs our est $2.35).”
Citi expects Hill to provide a timeline for when they expect the marketplace to be clean and stated they believe market expectations are for inventories to be clean by May 2025.
“We also expect Hill to give initial thoughts on how to return NKE to growth. Given the uncertainty as to whether there will be another reset lower on Hill’s first earnings call, we believe the risk/reward is balanced into 2Q EPS,” the firm said.
Citibank maintained its “Buy” rating on Nike, Inc. shares.
Williams Trading analyst Sam Poser advised clients to “Buy” NKE in a patient manner, while acknowledging that Nike’s “current trends are not good.”
As a result of the needed aggressive promotional stance for the brand, which likely includes markdown support to wholesale partners, Poser said Williams is lowering its fiscal Q2 revenue & EPS forecast from down 8.1 percent & 66 cents EPS to down 9.8 percent and 60 cents EPS.
“We are also cutting our FY25 EPS estimate from $3.04 to $2.69, and trimming our FY26 EPS estimate from $3.42 to $3.34,” Poser wrote in a December 11 note. “The faster Nike cleans up the problems, the faster it rights the ship,” he said.
“Short term concerns about product, margins, and geographies are understandable, but why is are those issues a surprise to anyone, given that Nike has been led by a consultant, not a brand person, over the past few years,” Poser questioned. “Consultant minded planners overcooked core classic Nike franchises, including the Air Force 1, the Dunk, and Jordan 1, causing an over saturation of product in the marketplace, and 1Q25 digital sales for those franchises to be down ~50 percent in order to prevent franchise erosion.”
He said Nike’s balance sheet allows for necessary steps to be taken to right the brand.
“Mr. Hill has cut the bandage off, which will quickly create a base for the business. We expect an aggressive promotional stance will remain in place through 3Q25, and begin to moderate in 4Q25,” Poser forecast.
Williams Trading maintained its “Buy” rating and a $97 per share target price.
Set your clocks for 4 p.m. ET.
Images courtesy Nike
