Nike Stock Surges. Why the Sportswear Rally Might Not Last.
Shares of Nike and its peers rose Friday after earnings from the maker of athletics gear relieved concerns about discounting. It’s a much-needed boost for Nike and the sportswear sector overall.
Nike (ticker: NKE) stock was up 7.5% at $96.39 in trading Friday after giving better-than-expected guidance alongside its first-quarter earnings. The gains put the stock on pace for its biggest increase since December last year.
The stock had been down 23% this year so far as of Thursday’s close as the company struggled with concerns over a slowdown in China and elevated inventory. The report came after the bell.
“A big sigh of relief will be the likely investor reaction,” wrote Jefferies analyst James Grzinic. He said key positives were Nike’s falling inventory and maintained guidance for growth in sales and an improved gross margin.
“Other interesting flags include a call-out around a ‘highly promotional’ Chinese environment which did not prevent an improvement in full price sales,” Grzinic said.
Jefferies has a Hold rating and $100 target price on Nike stock. Nike was a Barron’s stock pick earlier this year.
The whole athletic-gear sector rose after Nike’s report. On Holding (ONON) was up 7.5%, Foot Locker (FL) rose 2.8%, Under Armour (UA) rose 4.9%, Skechers USA (SKX) was up 3.6%, and Dicks Sporting Goods (DKS) rose 1.5%.
Nike’s European rivals Adidas (ADS.Germany) and Puma (PUM.Germany) climbed 7.1% and 7.8%, respectively.
While analysts acknowledged Nike’s outlook offered some relief against a tough backdrop, they weren’t uniformly betting on the rally to continue.
The performance was good enough to convince CFRA Research analyst Zachary Warring to raise his 12-month price target on the stock to $91 from $88 but keep a Hold rating on Nike. He said that at 25 times its forward earnings per share, it looks to be trading at a fair multiple.
Future sales in North America were an issue for a number of analysts, with concerns about the resumption of payments on student loans possibly holding back spending on clothes and sneakers.
“Recovery in the back half remains intact, for now, though growth in North
America is likely to remain challenged as we lapse two strong quarters of growth from 2Q/3Q 2023. Additionally, we believe that Greater China improvements are to remain muted in the near term due to ongoing foreign exchange headwinds,” KeyBanc analyst Ashley Owens wrote.
Owens kept a Sector Weight rating on the stock without a price target.
Seaport Research analyst Mitch Kummetz kept a Neutral rating on the stock with no price target, arguing the company still looks to be losing market share in running shoes to HOKA –owned by Deckers Outdoor (DECK)– and privately owned New Balance.
For a bullish take, investors have to look further out and have confidence Nike meets its guidance for the second half of its fiscal year.
“We believe the stock can rise further if it becomes clear Nike can achieve its Q2 revenue guidance. If this happens, we think the narrative around the stock will change,” UBS analyst Jay Sole wrote.