Source: Davit Kirakosyan
Raymond James Analysts Remain Cautious on Nike’s Performance
Raymond James analysts have decided to maintain their Market Perform rating for sportswear giant Nike (NYSE:NKE). This decision is largely influenced by the ongoing challenges that the Oregon-based company continues to face in its bid to drive growth and improve its performance. The analysts’ outlook mirrors widespread industry concerns over lingering inventory issues and increased promotional activity, factors that are increasingly impacting the company’s margins.
The Challenges Impacting Nike’s Growth
Despite being a dominant player in the global sports apparel market, Nike has been grappling with several issues that have stymied its growth. One of the major concerns is the lingering inventory problem. This issue has been a stumbling block for Nike, causing the company to struggle with a surplus of stock and prompting an increase in markdowns and promotions to clear the excess inventory. The upshot of this is a reduction in the company’s gross margins. In addition, increased promotional activity, while necessary for inventory clearance, is further eroding the company’s profitability by driving down prices and consequently, the profit margin.
Q2 2025 Projections for Nike
For the second fiscal quarter of 2025, scheduled for December 19, Raymond James has projected that Nike will report earnings per share, revenue, and gross margins that are slightly below consensus estimates. The analysts posit that the company spent a significant portion of the quarter addressing legacy inventory issues. Consequently, new innovations, which are critical for driving growth, seem to have scaled at a slower pace than anticipated, thereby limiting the potential for an unanticipated surge in growth.
Additional Factors Impacting Nike’s Performance
Analysts at Raymond James also identified several other headwinds that Nike continues to face. Data from Google Trends, mobile app activity, and promotional comparisons all point to a subdued environment. Furthermore, read-throughs from Foot Locker, a key Nike distributor, reveal an increase in year-over-year promotional activity for Nike and its subsidiary, Jordan. This increase was particularly evident during the Cyber-5 period, which is in line with Nike’s guidance for lower gross margins due to discounting.
On the expenditure side, the company’s selling, general, and administrative expenses are expected to remain flat year-over-year, even after adjustments for a one-time charge in the prior year. While this cost control measure could potentially result in an earnings beat, the analysts believe it is unlikely to significantly boost the stock’s valuation.
Nike’s Current Trajectory: A “Show-Me” Story
Despite these challenges, the future of Nike remains a “show-me” story. Analysts are cautious about declaring a definitive turnaround for the company. However, with its strong brand recognition and global footprint, the company has the potential to recover and return to a path of sustained growth. The key to this recovery lies in successfully addressing the ongoing inventory issues, reining in promotional activities, and accelerating the pace of innovation. If Nike can achieve these objectives, it could potentially exceed analysts’ expectations and reaffirm its position as a leader in the global sportswear market.