Jefferies downgrades Nike, says wholesale and China pressures will keep stock in check
Investors may want to stay away from Nike as near-term headwinds weigh on the sports retailer, according to Jefferies. Analyst Randal Konik downgraded the apparel giant to hold from buy. He also lowered his price target by $40 to $100, which suggests roughly 10.1% upside from Friday’s close. “We see incremental risk ahead for NKE as the wholesale channel is likely to remain pressured and growth in China faces macro headwinds,” Konik wrote in a Monday note. “Meanwhile, our consumer survey results indicate that US consumers are likely to reduce spending ahead, with apparel and footwear being the most likely areas of pullback.” The analyst lowered his revenue and earnings-per-share estimates for fiscal 2024 to $52.1 billion and $3.45, respectively. Both estimates are lower than consensus, according to the note. While retail inventory levels have improved industry-wide, Jefferies thinks tight inventory management through at least the end of 2023 is likely to reduce orders and weigh on Nike’s wholesale channel. The retailer’s ongoing focus on increasing direct-to-consumer sales penetration is likely to expand margins over time, but a pressured consumer environment could slow the rate of this expansion, Jefferies said. Additionally, Jefferies said Nike’s growth in China could be “choppy” given the recent slowdown in apparel retail sales in the country, expecting 7% growth in fiscal year 2024 compared to the 12% consensus estimate. Jefferies also pointed to a slowdown in U.S. consumer spending that could lead to further headwinds for Nike. Konik highlighted the firm’s recent consumer survey that indicated U.S. consumers with student debt are concerned about meeting their monthly expenses, and that apparel and footwear are likely to be areas of reduced spending moving forward. A substantial amount of survey respondents plan to buy cheaper alternatives in apparel and footwear, the analyst added. “We believe these results suggest that NKE could face incremental headwinds in higher-priced areas of its assortment,” Konik said. Konik’s downgrade comes ahead of Nike’s fiscal first-quarter earnings report, which is slated for Thursday after the bell. Analysts on average expect the company to report a profit of 76 cents per share on revenue of $13.02 billion, FactSet data shows. Nike’s stock has struggled this year, losing more than 22%, making it the second worst-performing Dow Jones Industrial Average member. NKE YTD mountain NKE year to date — CNBC’s Michael Bloom contributed to this report.
