Dow Jones giant Nike reported earnings well above estimates for its mixed Q1 2024 results late Thursday. Nike stock leapt Friday.
Earnings
Nike earnings ticked up 1% to 94 cents per share after reporting accelerating declines the past two quarters. Revenue growth slowed for the third quarter in a row, rising 2% to $12.94 billion.
Still, the slight EPS gain easily beat Wall Street forecasts. Analysts polled by FactSet expected earnings to fall 18% to 76 cents per share. However, sales just fell short of the expected 2.5% gain to $13 billion.
Nike brand revenues rose 3% to $12.4 billion, driven by growth in the Greater China and Europe, Middle East and Africa (EMEA) markets. Total China sales rose by 12%, marking the second consecutive quarter of double-digit growth. The results were offset by a decline in North America. Converse revenues fell 9% to $588 million, largely due to a decline in North America.
Nike Direct sales, which encompass digital and online offerings, rose 6% to $5.4 billion.
Demand creation expenses increased 13% to $1.1 billion due to greater spend on advertising and marketing. Nike's inventories decreased 10% from last year to $8.7 billion, which the company attributed to a decline in units.
For Q2, Nike expects revenue growth to increase slightly compared to last year. Executives anticipate gross margins expand by about 100 basis points vs. a year ago due to strategic pricing, improved markdowns and lower ocean freight rates. However, the company continues to see a negative impact from foreign exchange headwinds.
Nike also plans to continue to reset its business with Foot Locker and expects near-term sales declines as they invest in long-term, consumer-focused concepts.
The Dow retailer sees full-year revenue growth in the mid-single-digits.
Nike Stock
NKE stock jumped 6.7% Friday after spiking 9.5% premarket. The morning gain pushed Nike stock back above its 10-day and 21-day moving averages. Shares are still trading below their 50-day moving average after falling from the level in August.
Nike stock is down about 17% for the year.
Analyst Outlooks
Morgan Stanley analyst Alex Straton wrote that the quarter seemed to confirm the bottom may be behind Nike following results, citing a strong guidance, trough sentiment and a path to accelerating fundamentals as soon as the second half of the fiscal year. Straton also noted constructive commentary around its inventory and innovation. Morgan Stanley maintained its overweight rating on Nike stock and a 126 price target.
Deutsche Bank lifted its price target on NKE stock to 125 from 122 early Friday. The first-quarter report was in-line with expectations, analyst Gabriella Carbone wrote, but management commentary suggested a more positive environment than most thought.
Consumer stocks are generally ailing in anticipation of lower demand and softening sales. Even highflying footwear stocks like On Holding and Deckers from their respective 2023 and all-time highs from mid-August.
ONON stock rallied 6% Friday to reclaim its 200-day line after falling below the level earlier in the week. DECK stock rose 1.3% Friday to mark its second consecutive gain. Shares are trading around three-month lows.
Jefferies downgraded Nike to hold on Monday, noting U.S. consumers are likely to curtail spending. Footwear and apparel products are the most likely to see a pullback. The resumption of student loan payments in October could weigh further on already soft sales at some specialty apparel retailers. Meanwhile, Nike's wholesale channel will remain pressured and growth in China faces macroeconomic headwinds, according to the research note. Jefferies lowered its price target on NKE stock to 100 from 140.
Raymond James lowered its price target to 121 from 128 on Tuesday noting softer growth in the U.S. and Europe. However, Nike stock is "attractive for value investors" after falling 17% over the last three months. Analyst Rick Patel wrote that "a lot of the risk factors are priced in."
JPMorgan, BofA, Morgan Stanley and HSBC all lowered their price targets on Nike stock over the past week.
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