Athletic apparel giant Nike is set to unveil its fiscal first-quarter (Q1) results after Thursday’s market close, amid heightened investor scrutiny over consumer spending trends and challenges in key markets.
Over the past month, Nike’s stock has experienced a 9% decline, reflecting apprehensions among Wall Street analysts about the impending report. Foremost concerns include potential impacts of a spending slowdown and obstacles encountered in China and the wholesale sector.
According to Bloomberg consensus estimates, analysts are projecting the following figures for the Q1 results of Nike:
– Revenue: $12.99 billion versus $12.69 billion in the same period the previous year.
– Adjusted earnings per share (EPS): $0.75 compared to $0.93 in the corresponding period last year.
– Gross margin estimate: 43.7% versus 44.3% from the prior year.
Bank of America research analyst Lorraine Hutchinson expressed skepticism about upward estimate revisions, citing uncertainties in China and a challenging US wholesale environment. Hutchinson stated, “We remain Neutral and think valuation fairly reflects the lack of near-term positive earnings catalyst.”
Three months ago, Nike CFO Matthew Friend emphasized “strong consumer demand” as a pivotal driver for sales during the fourth quarter. Investors are vigilant for any shifts in this outlook, especially in anticipation of the critical holiday season. Concerns have been raised by some retailers about the potential impact of resuming student loan payments on sales.
Nevertheless, Forrester Research Analyst Sucharita Kodali downplayed these concerns, remarking, “The student loan repayment issue, I’m not as concerned for a company like Nike…Consumers who want their product will find ways to purchase their product.”
Nike’s report follows closely after Foot Locker’s warning of a slowdown in its footwear business due to “price sensitive” consumers. About 64% of Foot Locker’s sales comprise the Nike brand, according to Jefferies. Analysts posit that if Foot Locker encounters difficulties in moving Nike inventory, it may have a ripple effect on the broader wholesale market.
Forecasts anticipate a 4% decline in Nike’s wholesale segment sales for the quarter compared to the same period a year ago.
Goldman Sachs Managing Director Kate McShane provided a counterpoint, noting, “While we believe FL’s result does indicate some potential pressure in North America wholesale, we believe that the brand continues to see fairly healthy levels of demand at other retailers.”
One of the paramount concerns on the horizon is the sluggish economic growth experienced by the Chinese economy this year. Analysts on Wall Street fear that this could exert downward pressure on companies like Nike, which have substantial exposure in China.
“The China story is probably the biggest one here for Nike,” Kodali emphasized. “The challenge is that Nike has been very dependent on the Asian market, certainly on the Chinese consumer.”
Despite these challenges, with 26 Buy ratings, 12 Holds, and just four Sell ratings according to Bloomberg consensus data, some Wall Street analysts still foresee upside potential in Nike shares moving forward.
UBS analyst Jay Sole offered a measured perspective, stating, “Global business trends have likely been slightly worse than expected, but this is probably already priced into the stock and contemplated in the lower-end of Nike’s FY24 guidance range.”
Sole continued, “We believe the ‘bar’ for the event is a 1Q EPS beat, offset by a below-consensus Q2 guide, with Nike’s FY24 outlook remaining unchanged. Our view is Nike will meet this bar.”
Source: Yahoo Finance