Nike Earnings: Dim Sales Outlook Slams Shares, but Patient Investors Could be Rewarded

Morningstar analysts expect to reduce their Fair Value Estimate for Nike's shares

David Swartz 1 July, 2024 | 12:13AM
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Nike UK Main

Nike's (NKE) shares fell nearly 20% on June 28, as persistent sales weakness has added uncertainty to the firm's turnaround. Although the firm warned of a difficult demand environment for sportswear and we lowered our estimates, market conditions are more challenging than expected.

After posting flat sales growth in (May-ended) fiscal 2024, Nike guided to a mid-single-digit-percentage sales decline for fiscal 2025. Given that we projected 1% sales growth, we expect to reduce our fair value estimate of $129 per share by a low-single-digit percentage. Even so, we regard the share price weakness as an opportunity for long-term investors, since the sportswear leader stands to benefit from its planned marketing and product initiatives and the growth of the global market over the next few years.

Nike's 13.3% EBIT margin in its fiscal 2024 fourth quarter beat our estimate by 80 basis points and led to earnings per share of $0.99, which eclipsed our forecast by $0.11. However, this outperformance was mainly driven by a 9% reduction in overhead expenses and was overshadowed by the quarter's 2% sales decline, short of our estimate for a minimal (1%) gain. The firm attributed the slow sales to a few areas, including digital (down 10%), lifestyle products, some footwear, and uneven demand in key markets.

Key Morningstar Metrics for Nike

• Fair Value Estimate: $129.00;
• Morningstar Rating: 4 stars;
• Morningstar Economic Moat Rating: Wide;
• Morningstar Uncertainty Rating: Medium.

Nike Stock vs Morningstar Fair Value Estimate

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Nike Inc Class B73.42 USD0.04Rating

About Author

David Swartz  is a senior equity analyst at Morningstar

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