Nike stock declines following earnings report

Nike shares declined in early Friday trading, setting up the stock for a loss of around $21 billion. The world’s biggest sportswear group issued gloomy near-term sales forecasts that could test investor patience for its ongoing turnaround strategy. Nike launched a $2 billion cost-cutting plan last year under CEO John Donahoe aimed at boosting the group’s underlying profit margins and reviving store sales.

The group had also been hoping that a summer of high-profile sporting events, including the Paris Olympics and the Euro 2024 soccer championships, would help it win back its share of sales in key global markets, including China.

However, sales for the three months ending in March, the group’s fiscal fourth quarter, fell 2% from last year to $12.61 billion, coming in shy of the Street’s $12.8 billion forecast. Overall earnings were modestly firmer, rising 48% from last year to 99 cents per share, but gross margins fell shy of Wall Street forecasts as Nike used big promotional price cuts to shift some aging merchandise.

Looking into the coming financial year, Nike forecast a double-digit slump in overall revenues, against the Street consensus of a 1% gain, in what it called a transition year.

Wall Street analysts have been disappointed with Nike’s recent results and the gloomy near-term outlook, leading to changes in their ratings and price targets. Some analysts downgraded rating to ‘equal weight’ from ‘overweight’, questioning the group’s near-term path to profitability.

Price target has been lowered by $35 to $79 per share, as the company’s long-term growth and profitability remain unclear as the company undergoes strategic changes and faces macro headwinds.

Other analysts lowered price target by $6 to $75 per share, questioning if “the good days are over” for the sportswear group. Nike has become over exposed to mid-tier, fashion-based trends disrupted by more premium-based brands, and Nike management needs to pivot. Analysts still questioned the state of Nike’s current leadership, lowering his price target by $29 to $88 per share.

Nike shares were marked 18% lower in early Friday trading to change hands at $77.23 each, extending the stock’s year-to-date decline to around 28%. Shares in the group, a Dow 30 component, have lagged the broader benchmark for much of the past five years, falling 15% compared to a 47.2% gain for the overall average.