Nike stock plunges as Wall Street scoffs at margin outlook rather than cheering profits and revenue

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Shares of Nike Inc. fell to a two-year low on Tuesday after several Wall Street analysts cut price targets, as the sportswear and accessories giant’s disappointing gross margin forecast offset earnings and fourth fiscal quarter earnings.

The NKE share,
+0.46%
fell $7.72, or 7.0%, to $102.78, the lowest close since Aug. 7, 2020, and enough to pace the DJIA of the Dow Jones Industrial Average,
+0.27%
decliners. The decline in the stock price reduced the price of the Dow by approximately 51 points, while the Dow Jones fell by 491 points, or 1.6%.

Of the 31 analysts polled by FactSet, no less than 15 lowered their price targets. This lowered the average price target to $142.04 from $162.29 at the end of May.

But Wall Street remained extremely bullish on Nike, as 23 analysts had the equivalent of buy ratings on the stock, and the new target implied a roughly 37% upside from current levels.

set of facts


Nike on Monday night reported net income for the quarter to May 31 that slipped to $1.44 billion, or 90 cents per share, from $1.51 billion, or 93 cents per share, in the same period it a year ago, and above the FactSet consensus of 80 cents. sharing.

Revenue fell 0.9% to $12.23 billion, but topped the FactSet consensus of $12.06 billion.

Meanwhile, cost of sales increased 0.6% to $6.73 billion and gross margin contracted to 45.0% from 45.8%, higher inventory obsolescence reserves in China and the increase in transport and logistics costs offsetting higher selling prices and favorable currency fluctuations.

And on the post-earnings conference call with analysts, Chief Financial Officer Matthew Friend said fiscal year 2023 gross margins are expected to be flat at 50 basis points (0.50 percentage points) from previous year, citing continued high transportation and product costs.

Stifel Nicolaus analyst Jim Duffy reiterated the buy rating he’s had on Nike for at least four years, but lowered his share price target to $135 from $150. Duffy said not only did the fourth-quarter margin miss its forecast improvement to 47.0%, but the full-year forecast was also “light.”

Duffy said that, based on his calculations, Nike’s margin forecast implied earnings per share for fiscal year 2023 of $3.25 to $4.00, which is lower than his EPS estimate at the time of $4.48.

Wedbush’s Tom Nikic also remained bullish on the stock, but lowered his target from $139 to $130, citing a “noisy” quarterly report and a “more cautious than expected” full-year outlook.

Nikic said the company’s outlook showed the COVID-19-related lockdowns in China were hitting the company hard and leading to “persistent” margin issues.

“While trends in this market have slowly improved during the reopening, there is now oversupply in the market, which is likely to create a highly promotional environment in the short term,” Nikic wrote in a note. to customers.

Nikic suggested that Nike’s margin forecast implies an EPS range of $3.25 to $3.85.

The stock has plunged 38.3% so far this year, currently making it the worst year-to-date performance among Dow constituents. By comparison, the Dow has lost 14.8% this year.

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