Why Nike (NKE) Stock Is Trading Lower Today

Radek Strnad /
2024/06/28 11:33 am EDT

What Happened:

Shares of athletic apparel brand Nike (NYSE:NKE) fell 19.6% in the morning session after the company reported second-quarter earnings results. Unfortunately, its constant currency revenue missed. The company recorded weaknesses in its Lifestyle brand, especially in the Digital channel. Notably, digital channel sales declined 10% due to softer traffic, higher promotions, and lower sales of certain classic footwear franchises. Management cited these issues, in addition to macro headwinds (especially in China) and unfavorable FX, as the reasons for revising FY'25 guidance. Nike now expects fiscal 2025 sales to be down mid-single digits. Sales in the first half (1H'25) are expected to be down high single digits (vs. previous guidance for low single digits decline). Precisely, revenue is expected to be down 10% in Q1'25, given most of the challenges called out during the earnings call. Overall, this was a bad quarter for Nike.

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What is the market telling us:

Nike's shares are somewhat volatile and over the last year have had 3 moves greater than 5%. But moves this big are very rare even for Nike and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 8.7% on the news that the company reported Q3'2024 results and provided underwhelming guidance for the full year. Full-year revenue is expected to grow approximately 1%, showing little improvement from the guidance provided in the previous quarter. 

Readers will recall that in the previous quarter, the sales outlook for the rest of the fiscal year was impacted by macro headwinds mostly concentrated in Greater China and EMEA. It appeared little had changed since the guidance. In addition, while the revenue and EPS growth outlook for FY'2025 was anticipated to improve, revenue in the first half of the fiscal year was expected to be down low single digit. 

On the other hand, Nike blew past analysts' EPS expectations during the quarter. Its revenue and gross margin narrowly outperformed Wall Street's estimates, driven by strong sales of its Nike-branded goods (this excludes Converse, whose revenue dropped 20% on a constant currency basis). Specifically, Nike-branded equipment sales were up 21% year-on-year. Overall, it was a mixed but weaker quarter, given the underwhelming guidance.

Nike is down 28.6% since the beginning of the year, and at $75.95 per share it is trading 38.1% below its 52-week high of $122.64 from December 2023. Investors who bought $1,000 worth of Nike's shares 5 years ago would now be looking at an investment worth $905.78.

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