Evercore ISI changed its outlook on shares on Friday Nike (NYSE:), reducing the price target to $105 from $110, while maintaining an Outperform rating on the company. The revision follows the update of Nike’s financial guidance for the fiscal year 2025, which is now oriented towards the lower end of the scenarios previously considered. Nike’s new guidance suggests earnings per share of about $3.00 to $3.40, compared to Evercore ISI’s estimate of $3.60 and the broader market’s expectation of $3.86.
Nike’s revised fiscal 2025 revenue forecast calls for a 10% decline in the first quarter, a low-single-digit percentage decline in the first half, and a low-single-digit percentage decline for the full year. This is a departure from previous projections for modest revenue growth. The adjustment is attributed to Nike’s strategy to address excess retro product lines and focus more on innovation and improving the retail and consumer experience.
Despite cuts, particularly to retro product lines, that began in April, Evercore ISI recognizes Nike’s ongoing efforts to refresh its product offerings. The company is expected to revisit classic models like the Killshot, Field General, and Cortez to offset expected reductions in popular lines like the Air Jordan 1, Air Force 1, and Dunks. Nike expects a partial recovery in Lifestyle categories in the second half of the fiscal year, provided it can overcome a full year of reduced availability of retro products.
Nike’s guidance adjustment and associated strategic changes reflect the challenges of managing a large-scale operation and the time required to implement meaningful changes. Nike’s emphasis on innovation in performance categories is recognized, but the impact of the Lifestyle and Retro segments on total revenue remains substantial. The forecast for revenue acceleration in the second half of the fiscal year carries some risk until the full effects of the decline in retro products are realized.
In other recent news, Nike’s recent earnings report revealed a 1% increase in annual revenue and 15% growth in earnings per share, despite flat fourth-quarter revenue and declines in the lifestyle products category and in digital sales. For fiscal 2025, the company expects a mid-single-digit decline in reported revenue. Analysts at Stifel and Morgan Stanley changed their stance on Nike, downgrading the stock due to concerns about Nike’s earnings trajectory and lowered forecasts.
The company’s forecast also had an impact on other players in the sportswear and footwear market. JD Sports and Puma saw their shares fall, while Adidas posted a brief rise. However, Adidas failed to maintain its gains, falling 0.2%.
Kepler Cheuvreux analysts suggested that Nike’s changed business strategy offers Adidas the opportunity to expand its market share. Despite the challenges, Nike remains focused on innovation and strategic initiatives for future growth. The company also expects to double its growth in new innovations by the end of 2025.
Insights from InvestingPro
In light of Evercore ISI’s correct predictions for Nike, it is essential to closely monitor the company’s financial health and market performance. According to data from InvestingPro, Nike’s market capitalization is $142.17 billion, with a price-to-earnings (P/E) ratio of 27.48, reflecting investor confidence in its earnings potential. Despite slight revenue growth of 1.89% over the trailing twelve months as of Q3 2024, Nike maintained a solid gross profit margin of 44.3%, indicating effective management of costs relative to revenues.
InvestingPro’s recommendations highlight Nike’s ability to pay dividends, having increased its dividend for 22 consecutive years and maintained dividend payments for 41 consecutive years. This consistent performance, combined with its position as a major player in the textile, apparel and luxury goods sector, underscores the company’s stability and commitment to shareholder value. Additionally, Nike’s liquid assets outweigh its short-term obligations, providing a cushion for operational flexibility. For investors looking for more in-depth analysis and additional recommendations from InvestingPro, visit https://www.investing.com/pro/NKE and discover over 10 additional recommendations to guide your investment decisions. Don’t forget to use the coupon code PRONEWS24 to get an additional 10% off a one- or two-year subscription to Pro and Pro+.
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