22 March 2024
If you are covering Nike’s latest results, please see the following comment from Mamta Valechha, equity research analyst at Quilter Cheviot:
"Nike announced its third-quarter financial results, showing a marginal 0.3% increase in revenue powered by strong performance in North America and shrewd expense management, giving earnings a better-than-expected bounce.
"The slight uptick in revenue compared to a previously anticipated slight decrease was enough to initially boost the stock by a mid-single-digit percentage. However, this gain was short-lived as Nike forecasted a lower-than-expected growth rate for the first half of fiscal year 2025, predicting a low-single-digit decline compared to analysts' expectations of a 5% increase.
"It's crucial to address a significant concern surrounding Nike in recent quarters: a perceived lack of innovation. However, the company's management has indicated that this is about to change, with a new innovation cycle planned for the next three years, promising fresh designs for its major lines.
"While promising, this revival in innovation is not going to be immediate. As part of its strategy, Nike aims to reduce the distribution of older merchandise in the next three quarters to prevent it from overshadowing the upcoming product launches. This includes reducing shipments to retailers and cutting down on the variety of stock keeping units (SKUs) on their website, which, despite being a sound long-term strategy, is expected to lead to a short-term growth deceleration and resulted in a 5% drop in stock price post-market.
"The company's approach, if successfully implemented, is likely to foster several years of growth and increase market value, as demonstrated by Nike's rebound between 2017 and 2019 following a period of diminished innovation in 2016-17.
"Looking ahead, Nike has several positives on the horizon, especially with the upcoming summer of sports including the Olympics and the Euros. The brand plans to launch campaigns highlighting their products for athletes in Paris this April.
"Moreover, addressing recent challenges in the specialty running segment, Nike is preparing for new launches this summer to compete with brands like Hoka and On.
"Currently, Nike's stock is trading at a five-year low of approximately 24 times earnings, down from 29.1 times, indicating a shift from being a highly popular to a less crowded stock since December. Additionally, market sentiment towards the stock has been relatively low.
"For investors willing to endure the potential short-term stagnation or decline in growth over the next three quarters, the recent drop in Nike’s stock price may present an attractive entry point."
For more information, please contact Alex Berry on: + 44 (0)7741151931
