Nike's Market Share Declines as Competitors Gain Traction, Analysts Remain Cautious

Truist Securities's Beth Reed lowered their price target on Nike (NYSE: NKE) by 0.9% from $108 to $107 on 2023/12/22. The analyst maintained their Hold rating on the stock.

Reed's decision to lower the price target comes after Nike released its Q2 2024 earnings report on December 21, 2023. The report revealed that Nike is losing market share, possibly due to cautious consumers and increased promotional efforts by competitors. In response to this decline, Nike management has revised its FY 2024 revenue guidance, reducing it to 1% from mid-single-digits.

Reed specifically pointed out that Nike's market share is being affected by the more stable trends seen in companies like Lululemon Athletica Inc., Deckers Outdoor Corp, and On Holding Ag. The analyst believes that investors will remain cautious about Nike until they see evidence of top-line acceleration, despite management's optimism about the company's innovation pipeline and growth prospects.

In terms of Q2 2024 financials, Nike reported earnings per share (EPS) of $1.03, surpassing the Zacks Consensus Estimate of $0.84 and showing a 21.2% increase from Q2 2023's $0.85. However, Nike's revenue of $13.388 billion fell slightly short of the Zacks Consensus Estimate of $13.395 billion, although it still represented a 0.05% improvement from Q2 2023's $13.315 billion.

Nike's gross profit for Q2 2024 reached $5.971 billion, reflecting a 5% year-over-year increase. The company also achieved a gross margin of 44.6%, a 170 basis point expansion. Additionally, Nike paid out $523 million in dividends during the quarter and repurchased shares at a cost of $1.2 billion.

Looking ahead, Nike's Q3 2024 is expected to experience a slight decline in revenue growth compared to Q3 2023's double-digit growth. However, the company anticipates a gross margin expansion of 160 to 180 basis points during the quarter. For Q4 2024, Nike projects revenue growth in the low-single digits and a gross margin expansion of 225 to 250 basis points. In terms of the full fiscal year 2024, Nike now expects a 1% revenue growth, down from the previously guided mid-single digits, with a gross margin expansion of 140 to 160 basis points.

President and CEO John Donahoe expressed confidence in Nike's performance, 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."

In addition to Beth Reed's analysis, other analysts also revised their ratings and price targets for Nike on December 22, 2023. Piper Sandler's Abbie Zvejnieks lowered the price target by 4.5% from $112 to $107 but maintained a Hold rating on the stock. TD Cowen's John Kernan lowered the price target by 19.4% from $129 to $104 and downgraded the rating from Buy to Hold. JP Morgan's Matthew Korn lowered the price target by 7.9% from $139 to $128 but maintained a Strong Buy rating on the stock.

Currently, 82.4% of top-rated analysts consider Nike a Strong Buy or Buy, while 17.6% view it as a Hold. None of the analysts recommend or strongly recommend selling the stock.

The consensus forecast among analysts is that Nike will deliver earnings per share (EPS) of $3.8 in the upcoming year. If these projections hold true, Nike's next yearly EPS will increase by 16% compared to the previous year.

Since Nike's latest quarterly report, the stock price has declined by 11.8%. Year-over-year, the stock is down 7.4%. During this period, Nike has underperformed the S&P 500, which has experienced a 24.4% decline.

Beth Reed, the analyst who lowered the price target on Nike, is ranked in the bottom 16% of Wall Street analysts according to WallStreetZen. Reed has an average return of -1.6% and a 54.5% win rate. Their expertise lies in the Consumer Cyclical and Consumer Defensive sectors.

Nike, Inc., founded in 1964 and headquartered in Beaverton, Oregon, is a global company that sells athletic footwear, apparel, equipment, and accessories. The company operates both in the United States and internationally, offering products for adults and kids alike.

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