Nike Earnings: Dim Sales Outlook Slams Shares, but Patient Investors Could Be Rewarded

Key Morningstar Metrics for Nike

• Fair Value Estimate: $129.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Nike’s Earnings

Nike’s NKE shares roughly doubled their year-to-date decline with a 12% tumble in June 27 aftermarket trading, as persistent sales weakness has added uncertainty to the firm’s turnaround. Although the firm warned of a difficult demand environment for sportswear and we lowered our estimates, market conditions are more challenging than expected.

After posting flat sales growth in (May-ended) fiscal 2024, Nike guided to a mid-single-digit-percentage sales decline for fiscal 2025. Given that we projected 1% sales growth, we expect to reduce our fair value estimate of $129 per share by a low-single-digit percentage. Even so, we regard the share price weakness as an opportunity for long-term investors, since the sportswear leader stands to benefit from its planned marketing and product initiatives and the growth of the global market over the next few years.

Nike’s 13.3% EBIT margin in its fiscal 2024 fourth quarter beat our estimate by 80 basis points and led to earnings per share of $0.99, which eclipsed our forecast by $0.11. However, this outperformance was mainly driven by a 9% reduction in overhead expenses and was overshadowed by the quarter’s 2% sales decline, short of our estimate for a minimal (1%) gain. The firm attributed the slow sales to a few areas, including digital (down 10%), lifestyle products, some footwear, and uneven demand in key markets.

Nike brand sales fell 1% in North America (42% of total sales) and 2% in Europe, the Middle East, and Africa (26%), which was shy of our estimates for 1% growth for the former and a 1% decline for the latter. Meanwhile, 3% sales growth in Greater China (15% of total sales) was short of our 7% projection. Nike’s thousands of branded stores there experienced double-digit traffic declines amid a very promotional market, suggesting a return to historical sales growth levels above 10% is unlikely before fiscal 2026. That said, we anticipate a sharp turnaround as the nation’s sportswear market develops.