On Friday, JPMorgan issued a downgrade for Nike Inc (NYSE:NKE) shares, moving from an 'Overweight' to a 'Neutral' rating. The firm also reduced the price target for the athletic apparel and footwear giant to $83.00, a significant decrease from the previous $116.00.
The adjustment followed Nike's fourth-quarter earnings report, which revealed an adjusted earnings per share (EPS) of $1.01, surpassing the expected $0.84. However, the company experienced a revenue shortfall, with a year-over-year decline of 1.7%, which was below the anticipated 0.5% increase. Additionally, Nike's gross margin expansion of 110 basis points fell short of the forecasted 170 basis points.
Despite the revenue and gross margin misses, Nike managed to control Selling, General & Administrative (SG&A) expenses, which were down 7.4% year over year, compared to the street's expectation of a 1.9% decrease. The company also benefited from a lower tax rate and higher interest income, which collectively contributed 14 cents to the earnings.
The gross profit for Nike missed the consensus by $180 million, equating to a 10 cent fundamental EPS miss for the quarter. Despite favorable revenue shifts in North America and the Greater China region, the shortfall prompted JPMorgan to establish a December 2025 price target based on 24 times the firm's estimated calendar year 2026 EPS. This calculation is grounded in a linear regression for a 13-14% EBITDA margin on a mid-single-digit revenue growth profile for fiscal years 2025 and 2026.
In other recent news, Nike's financial forecast for fiscal year 2025 has been revised, indicating a shift towards the lower end of prior estimates. The new guidance projects earnings per share between approximately $3.00 to $3.40, leading to an adjustment in price targets by Evercore ISI and Stifel, who retain an Outperform and Hold rating respectively. Morgan Stanley also revised its outlook, downgrading Nike to Equalweight.
Nike's updated guidance suggests a decrease in revenue for the first quarter, first half, and full year of fiscal 2025, attributed to efforts to address overstocked retro product lines and a renewed focus on innovation and consumer experience. Despite the cutbacks, Nike anticipates a rebound in its Lifestyle categories during the second half of the fiscal year.
Recent earnings reports revealed a 1% annual revenue increase and a 15% growth in earnings per share. However, Nike anticipates a mid-single-digit decline in reported revenue for fiscal 2025. Analysts from Kepler Cheuvreux suggest that Nike's adjusted business strategy may present Adidas (OTC:ADDYY) with an opportunity to expand its market share.
These are the latest developments in the athletic apparel and footwear market, impacting other players such as JD (NASDAQ:JD) Sports, Puma, and Adidas.
InvestingPro Insights
In light of JPMorgan's recent downgrade of Nike Inc (NYSE:NKE), the InvestingPro data provides a mixed outlook. With a market capitalization of $142.17 billion and a P/E ratio that stands at 27.48, Nike showcases a significant presence in the market, albeit trading at a higher valuation than the industry average. The company's revenue has seen a modest growth of 1.89% over the last twelve months as of Q3 2024, which may underpin JPMorgan's conservative revenue growth expectations.
An InvestingPro Tip highlights that Nike has raised its dividend for 22 consecutive years and has maintained dividend payments for 41 consecutive years, indicating a strong commitment to shareholder returns. This is particularly noteworthy for investors seeking stable dividend-paying stocks. Additionally, the company's liquid assets exceed its short-term obligations, suggesting a solid liquidity position.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available, including insights on earnings revisions and Nike's performance within the Textiles, Apparel & Luxury Goods industry. To access these tips and more, visit https://www.investing.com/pro/NKE and remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 9 more InvestingPro Tips waiting to guide your investment decisions in Nike.
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