Nike earnings: Recent stock surge provides a tough set up ahead of results

In comparison, the Consumer Discretionary Select Sector SPDR ETF
XLY
has rallied 6.7% month to date and the Dow Jones Industrial Average
DJIA
has gained 3.6%.

The rally comes as Nike is scheduled to release results for the quarter ending Nov. 30, due Thursday after the 4 p.m. Eastern closing bell.

While Wall Street is generally upbeat about Nike’s recent performance, that could leave the stock vulnerable when the results are released.

Wedbush analyst Tom Nikic said recent conversations with investors about Nike have “skewed surprisingly bullish,” as many are excited about the company’s opportunities to accelerate revenue growth in 2024 because of leaner sales-channel inventories. He said investors believe profit margins will get a boost from lower freight costs, less discounting and recent cost cuts.

“While we agree with this viewpoint for the most part, and think that [Nike] is a compelling 2024 investment story, we think it’s also important to keep in mind that [Nike] is not yet firing on all cylinders,” Nikic wrote in a recent note to clients.

He noted that the brand was more promotional than last year during Black Friday week, and recent sell-through trends for the Jordan brand have been “choppy.”

Read: A record number of customers shopped during Thanksgiving weekend — but spent less on holiday items.

Given this backdrop, Nikic said it’s tough to envision Nike raising its full-year sales guidance. And after the stock’s recent strong performance, “we’re not sure that a simple reiteration of guidance is ‘enough,’” Nikic wrote.

When the company reported first-quarter results in late September, management said it continued to expect full-year revenue growth in the mid-single-digits percentage range. Meanwhile, the current FactSet revenue consensus for fiscal 2024 implies growth of 3.7%.

Still, Nikic reiterated the outperform rating he’s had on the stock for at least the past two years and kept his price target at $145, which implied about 19% upside from current levels.

Despite Nikic’s caution ahead of results, he is the second-most bullish on Nike’s stock, of the 36 analysts surveyed by FactSet. The most bullish is Oppenheimer’s Brian Nagel, who has a $150 price target.

Here are the average second-quarter analyst estimates compiled by FactSet for some of Nike’s closely watched financial metrics:

• Earnings per share of 84 cents, down from 85 cents in the same period a year ago. The company beat EPS expectations for the first quarter and has exceeded forecasts for 12 of the past 13 quarters.

• Revenue is expected to rise 0.6% to $13.39 billion. Nike missed first-quarter revenue expectations, to snap a seven-quarter streak of beats.

• North America revenue of $4.81 billion, down 17.5% from a year ago.

• Revenue or Europe, the Middle East and Africa is expected to decline 2.4% to $3.41 billion.

• Greater China revenue of $2.13 billion, up 18.9% from last year.

• Revenue for the Asia Pacific and Latin America region is expected to rise 5.5% to $1.69 billion.

• Nike said in its first-quarter report that it repurchased $1.1 billion worth of its stock, as part of four-year, $18 billion buyback program set in June 2022. That means $12.1 billion remained in the buyback program.

Among other numbers to watch, gross margin in the first quarter was 44.2%, up from 43.6% in the fourth quarter.

And the value of inventories at the end of August was $8.7 billion, down 10% from a year ago, compared with $8.45 billion in the fourth quarter, which was flat from the year before.

Over the past 10 quarters, the stock has gained the day after results were reported five times, with a median gain of 6.7%, and has declined five times, with a median loss of 6.3%, according to FactSet data.