Nike earnings loom: Analysts cut NKE stock targets on China and other headwinds
Nike (NKE) is in a dip in form as it prepares to report its fiscal fourth quarter results. Covid lockdowns in China took their toll in the quarter ended May. The world’s largest sports retailer has also just announced a full Russian exit plan.
Analysts are placing their bets ahead of the announcement, with a slew of target declines in Nike’s stock price.
For the period, Wall Street expects Nike’s earnings per share to fall 13% to 81 cents with revenue down 2% to $12.07 billion.
The sportswear giant has faced a number of headwinds in recent quarters. Last summer, pandemic shutdowns forced Nike to suspend operations in Vietnam, where it manufactures 80% of its shoes and half of its apparel. NKE resumed full production in November. This spring, the Covid shutdowns in China caused more store and factory closures. China accounts for 17% of Nike sales, behind the United States at 33%.
Rarity of sneakers
The latest supply chain disruptions will only compound NKE’s inventory problems. The company is experiencing shortages of Nike, Jordan and Converse shoes in most of its markets. This has resulted in higher production costs for Nike, which is reflected in its price tags, analysts note.
“Market demand continues to significantly outpace available inventory supply, with an attractive market in all of our geographies,” Chief Financial Officer Matt Friend said in Nike’s third-quarter earnings report.
On June 23, Nike announced that it would leave Russia completely and end its operations there over the next few months. The company had suspended its operations there on March 3, following the invasion of Ukraine.
“Our priority is to ensure that we fully support our employees as we responsibly scale back our operations over the coming months,” a Nike spokesperson said in the announcement.
Many other retailers and restaurants, including Adidas (ADDYY) and McDonald’s (MCD), made similar decisions. But this is unlikely to have a significant impact on Nike’s finances. Russia represents less than 1% of the company’s turnover.
Earnings calendar, analyst estimates and stocks to watch
Nike rose 5.2% to 112.91 in stock trading last week. But they are still below a 50-day descending line and not far from a 22-month low of 103.46 on May 26. NKE stock plunged a record low of 179.10 on May 5.
Analyst outlook for NKE stock
A number of companies cut their NKE share price target in the days leading up to its earnings report. Many analysts believe the shutdowns in China have had a more serious impact than expected.
Deutsche Bank analyst Gabriella Carbone cut the company’s price target to $152 from $175. Carbone expects revenue for China of $1.74 billion, below consensus of $1.8 billion. But trends in North America and Europe could offset that weakness, she noted Thursday. Deutsche Bank maintains its buy rating.
Credit Suisse also lowered its Nike share price target to $130 from $165 as global trends are likely worse than expected. Analyst Michael Binetti noted that consumer demand remains strong and NKE is struggling to get inventory to customers. Credit Suisse maintains an outperformance rating for the stock.
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