Nike's Q2 2024 Earnings Report Prompts Analyst Carbone to Lower Price Target

Deutsche Bank's Gabriella Carbone lowered their price target on Nike (NYSE: NKE) by 3% from $132 to $128 on 2023/12/22. The analyst maintained their Strong Buy rating on the stock. Carbone's decision was influenced by Nike's Q2 2024 earnings report, which was released on December 21, 2023. The report revealed a mix of positive and cautionary factors that contributed to the price target cut.

According to Carbone, Nike's earnings report had "a lot to unpack." The sportswear giant announced $2 billion in cost savings over the next three years, along with restructuring costs of $400 million to $450 million. Deutsche Bank views these moves positively, as they are aimed at streamlining the organization, accelerating innovation, and increasing speed to market, all of which should lead to greater profitability.

However, Carbone also highlighted the cautionary side of the ledger. Nike's management predicted softer demand outside of key consumer moments, along with higher promotional activity across the marketplace. As a result, the company is taking a more cautious stance moving forward.

For Q2 2024, Nike reported earnings per share (EPS) of $1.03, beating the Zacks Consensus Estimate of $0.84 and surpassing Q2 2023's $0.85 by 21.2%. 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 stood at $5.971 billion, representing a 5% year-over-year increase, while the gross margin expanded by 170 basis points to 44.6%. The company paid out $523 million in dividends and repurchased shares at a cost of $1.2 billion during the quarter.

Looking ahead, Nike provided guidance for Q3 2024, anticipating a slight decline in revenue growth compared to Q3 2023's double-digit growth. However, the company expects a gross margin expansion of 160 to 180 basis points. For Q4 2024, Nike projects revenue growth in the low-single digits and a gross margin expansion of 225 to 250 basis points. For the full fiscal year 2024, Nike expects revenue growth of 1%, down from the previously guided mid-single digits growth, and a gross margin expansion of 140 to 160 basis points. The company also disclosed restructuring charges (severance costs) of $400 million to $450 million in the second half of 2024, primarily recognized in Q3.

Nike's President & CEO, John Donahoe, expressed satisfaction with the Q2 results, stating, "Our Q2 results demonstrated how we are getting back on our front foot in our key areas of innovation and growth." Donahoe emphasized the company's focus on innovative products, distinctive storytelling, and differentiated marketplace experiences.

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."

In addition to Gabriella Carbone's rating and price target adjustment, other analysts also updated their ratings on Nike on December 22, 2023. Piper Sandler's Abbie Zvejnieks lowered their price target by 4.5% from $112 to $107 but maintained their Hold rating on the stock. TD Cowen's John Kernan lowered their price target by 19.4% from $129 to $104 and downgraded their rating on the stock from Buy to Hold. Truist Securities's Beth Reed lowered their price target by 0.9% from $108 to $107 and maintained their Hold rating on the stock.

Currently, 82.4% of top-rated analysts rate Nike as a Strong Buy or Buy, while 17.6% view it as 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 $3.80. If the analysts' predictions hold true, Nike's next yearly EPS will see a 16% increase on a year-over-year basis.

Since Nike's latest quarterly report on December 21, 2023, the stock price has decreased 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.

It's worth noting that Deutsche Bank analyst Gabriella Carbone is ranked in the bottom 14% of Wall Street analysts, with an average return of -1.1% and a 46.2% win rate. Carbone specializes in the Consumer Cyclical sector.

Nike, Inc., founded in 1964 and headquartered in Beaverton, Oregon, is a global leader in athletic footwear, apparel, equipment, and accessories. The company operates in the United States and internationally, catering to both adults and children.

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