Nike (NKE) shares slumped lower Tuesday after analysts at Barclays lowered their rating and price target on the world’s biggest sports apparel group ahead of its first quarter earnings later this month.
Barclays analyst Adrienne Yih cut her rating on Nike by one notch, to ‘equal weight’ and lowed his price target by $15, to $110 per share, citing excess inventory and weakness in its key China market. She also noted teh impact of a surging U.S. dollar, which hit a fresh 20-year high against its global peers earlier this month, as well as fading consumer demand in Europe and north America.
Nike said earlier this summer that fiscal 2023 revenues would grow by only ‘low single digits’ when compared to 2022 levels, thanks in part to currency headwinds, adding that profit margins could fall by as much as 50 basis points.
The group also said inventories rose 23% from last year to $8.4 billion, thanks in part to extended lead times from supply chain disruptions, and noted that price discounts to both wholesale and direct-to-consumer clients would likely be necessary to “clear some of the inventory that isn’t owned by Nike but that’s in the marketplace.”
Nike will publish its fiscal first quarter earnings on September 29.
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“We believe that Nike could deliver (first quarter) in-line sales and earnings if they again pull back on demand creation,” Yih said. “However, we believe such a composition of the quarter would be low quality, and we are more interested in current and forward-looking demand trends and future margin risk.”
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Nike shares were marked 2.8% lower in pre-market trading to indicate an opening bell price of $104.20 each.
Nike posted stronger-than-expected fourth quarter earnings of 91 cents per share on June 27, with Street-beating revenues of $12.24 billion, as solid gains in its direct-to-consumer business offset a Covid-linked sales slump in China.
Gross profit margins narrowed 80 basis points to 45%, just shy of Street estimates of 46.6%, as input and transportation costs surged. North America revenues were down 5%, but direct-to-consumer sales were up 7%, helping offset both the impact of a stronger U.S. dollar and the Covid-related slump in China sales.