While the S&P 500 Index ($SPX) hit a new record high yesterday after dovish testimony from Fed Chair Jerome Powell, Nike (NKE) stock fell to new 52-week lows. Nike has now lost a third of its market cap in 2024, and is among the top 10 S&P 500 losers this year.
To be fair, Nike’s underperformance is not a 2024 phenomenon; the stock has been sliding since hitting an all-time closing high of over $173 in November 2021. The stock closed in the red for both 2022 and 2023, and looks on track to do the same in 2024, as well. Here’s a look at what’s driving Nike stock lower, and whether the stock can rebound from the slump.
What’s Happening with Nike?
Nothing much has gone right for Nike over the last few quarters, and the shares have fallen after three of its previous four earnings releases. In particular, the athletics giant has spooked markets with its sagging topline growth, and missed revenue estimates in three out of four quarters in the last fiscal year.
Along with missing on revenues, Nike’s guidance has also been below par – including during the fiscal Q1 2025 earnings last month, where it warned of a 10% decline in sales in the current quarter. The guidance was much worse than what analysts expected, and the full-year guidance spooked investors, as well.
The sneaker giant expects sales to fall by “mid-single digits” this fiscal year - which was not only lower than its previous guidance, but also below analysts’ estimate for almost 1% growth.
Why Are Nike’s Sales Falling?
Nike blamed several factors for lowering its fiscal 2025 revenue guidance. These include a fall-off in the lifestyle segment, higher macro uncertainty, unfavorable currency movements, “uneven consumer trends continuing in EMEA (Europe, Middle East and Africa) and other markets around the world,” and the continued slowdown in the Greater China region.
To be sure, some of those macro factors - like foreign currency movements, macro uncertainty, and lackluster global consumer spending - are a headwind for most global consumer companies.
Nike’s Direct Strategy Backfired
However, these factors don’t cover all of the headwinds that Nike faces, and still hasn’t been able to address fully. During fiscal Q4, Nike Direct revenues fell 7% on a currency-neutral basis. Notably, as part of its strategy to boost margins and maintain greater control over its sales channels, Nike had lowered its focus on wholesale sales while doubling down on direct sales through its own stores, as well as online sales.
The company also cut ties with some retailers, and the strategy seemed to pay off initially, with Nike reporting strong growth in direct – especially online sales. However, cracks started appearing in the strategy last year, with Nike struggling to grow sales through the direct channel.
As Williams Trading analyst Sam Poser perhaps best summed up, “Nike thought they could do a lot of it themselves, but they aren’t as capable as they thought they were.”
Nike has since reversed course, and is yet again focusing on wholesale sales. It has even brought back former executive Tom Peddie from his retirement to mend relationships with retailers and grow sales through that channel.
Nike Is Facing Intense Competition
The second headwind that Nike faces comes from intense competition – from established brands like Adidas (ADDYY), as well as newer brands like New Balance, Hoka (DECK), and On Running. In fact, by lowering the focus on wholesale sales, Nike might have inadvertently contributed to the growth of other brands that now seem to have gained at Nike’s expense.
To make things worse, despite Nike talking about innovation extensively, it has lagged in efforts to bring attractive new products to the market.
NKE Stock Forecast
After Nike’s disappointing earnings last month – after which it lost nearly 20%, and shed a record $28 billion of its market cap – several brokerages lowered the stock’s target price. It now has a “Strong Buy” or “Moderate Buy” rating from just around 52% of the analysts in coverage, while the corresponding figure a month back was over 70%.
NKE's mean target price is $94.73, which is over 30% higher than Tuesday’s closing prices.
Should You Buy Nike Stock?
Amid the crash, Nike stock has almost fallen to its March 2020 lows, when global markets tanked amid the initial outbreak of the COVID-19 pandemic. Currently, Nike trades at a next 12-month (NTM) price-to-sales multiple of 2.24x, which is the lowest in five years. Similarly, its NTM price-to-earnings (PE) multiple of 22.71x is the lowest in five years. Importantly, the company’s current valuation multiples are even below their COVID-19 lows, which goes to show the extent of the market’s pessimism towards Nike.
However, the valuations are low for a reason, and markets have derated the stock for its sagging growth. Unless Nike gets its act together and improves its sales by coming up with innovative products that can excite buyers, the stock might fail to win over markets.
On the date of publication, Mohit Oberoi had a position in: NKE . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
