Nike (NKE) is facing a "perfect storm" as fashion trends transition away from its core strengths and competition rises, according to RBC Capital Markets, which cut the apparel maker's price target.

The brokerage said the sportswear giant's product transition program is a multi-quarter process and presents operational and execution risk. The company will have some "heavy lifting" to do to simplify franchises such as Air Force 1, Dunk and certain Jordan lines, and replace them with new styles, including refreshing entry-level ranges, RBC analysts led by Piral Dadhania wrote in a client note.

"Nike should emerge a stronger company pursuing a more radical overhaul which is necessary and resort of last option," Dadhania said. But RBC requires better visibility on the revenue outlook and a clear understanding of the product pipeline for it to turn "more positive" on the company, he said.

During a fiscal fourth-quarter earnings call last week, Nike's Chief Financial Officer Matthew Friend told analysts that the company has created iterations and dimensions for the Air Force 1, Air Jordan 1 and Dunk business, generating "extraordinary consumer demand." In December, the company outlined a plan to cut costs by up to $2 billion over the next three years, including simplifying its product assortment, increasing automation, and streamlining the organization.

Dadhania said there's been some complacency in assessing Nike's equity story in recent months. However, the company should have a "better base from which to reset its business" after it provided new full-year guidance that "materially" reset expectations, the analyst said.

Nike now anticipates a mid-single-digit percentage revenue decline in fiscal 2025, compared with its prior expectations for annual growth. RBC lowered its estimates for the company's full-year revenue and earnings before interest and taxes by 7% and 25%, respectively, along with a "slightly higher" selling, general and administrative expenses with flat overhead costs.

The brokerage lowered its price target on Nike to $75 from $100 with a sector perform rating on the stock. The company's shares have de-rated closer to sector average valuation, but still not enough compared with its growth prospects, according to RBC. The firm said a transition of fashion trends away from lifestyle, Nike's core strength, in addition to low consumer spending on sporting goods and increasing competition in China pose risks to its view.

"Nike de-rating is partially helpful, however relative to its near term growth prospects (both absolute and relative) we believe it is not yet compelling enough," Dadhania said.