Nike (NKE) Q2 Earnings Beat Expectations, But Concerns Arise Over Topline Trends

Stifel Nicolaus's Jim Duffy lowered their price target on Nike (NYSE: NKE) by 4.4% from $135 to $129 on 2023/12/22. The analyst maintained their Strong Buy rating on the stock.

Post Nike's Q2 2024 earnings report, released on 2023/12/21, Duffy focused on management's "more cautious" 2H 2024 revenue guidance, noting that it reflects Nike's reorganization to safeguard future earnings potential. Although Stifel Nicolaus values management's "focus on margin," the "uninspiring" topline trends are nevertheless worrisome, the analyst noted.

For Q2 2024, Nike reported earnings per share (EPS) of $1.03, beating the Zacks Consensus Estimate of $0.84 by 21.2% and exceeding Q2 2023's $0.85. Revenue for the quarter was $13.388 billion, missing the Zacks Consensus Estimate of $13.395 billion but surpassing Q2 2023's $13.315 billion by 0.05%. Nike's gross profit for the quarter was $5.971 billion, representing a 5% year-over-year increase, with a gross margin of 44.6%, up 170 basis points. The company also paid out $523 million in dividends and repurchased shares at a cost of $1.2 billion.

Looking ahead, Nike provided guidance for Q3 and Q4 2024. For Q3, the company expects a slight decline in revenue growth compared to Q3 2023's double-digit growth, but projects gross margin expansion of 160 to 180 basis points. In Q4, Nike anticipates low-single-digit revenue growth and gross margin expansion of 225 to 250 basis points. For the full fiscal year 2024, Nike revised its revenue growth forecast to 1%, down from the previously guided mid-single digits growth, with gross margin expansion of 140 to 160 basis points. The company also disclosed restructuring charges of $400 million to $450 million in 2H 2024, primarily recognized in Q3.

Commenting on the results, Nike President & CEO John Donahoe expressed optimism, stating, "Our Q2 results demonstrated how we are getting back on our front foot in our key areas of innovation and growth." CFO Matthew Friend added, "NIKE’s Q2 financial performance was a turning point in driving more profitable growth. As we look ahead to a softer 2H revenue outlook, we remain focused on strong gross margin execution and disciplined cost management."

Following the earnings report, several other analysts updated their ratings and price targets on Nike. Abbie Zvejnieks of Piper Sandler lowered their price target by 4.5% from $112 to $107 but maintained a Hold rating on the stock. John Kernan of TD Cowen downgraded their rating on Nike from Buy to Hold and lowered their price target by 19.4% from $129 to $104. Beth Reed of Truist Securities lowered their price target by 0.9% from $108 to $107 but maintained a Hold rating.

According to data from WallStreetZen, 82.4% of top-rated analysts currently view Nike as a Strong Buy or Buy, while 17.6% consider it a Hold. No analysts recommend or strongly recommend selling the stock. The consensus forecast among analysts is that Nike's upcoming year will deliver earnings per share (EPS) of $3.8. If the analysts' predictions hold true, Nike's next yearly EPS will increase by 16% compared to the previous year.

Since Nike's latest quarterly report on 2023/12/21, the stock price has declined by 11.8%. On a year-over-year basis, the stock is down 7.4%. During the same period, Nike has underperformed the S&P 500, which is down 24.4%.

Stifel Nicolaus analyst Jim Duffy, who lowered Nike's price target and maintained a Strong Buy rating, is ranked in the top 5% of Wall Street analysts by WallStreetZen. With an average return of 14.7% and a 64.2% win rate, Duffy specializes in the Healthcare, Consumer Cyclical, and Technology sectors.

Nike, Inc., founded in 1964 and headquartered in Beaverton, Oregon, is a global retailer of athletic footwear, apparel, equipment, and accessories. The company operates both in the United States and internationally, offering products for people of all ages, including kids.

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