In This Article:
If you thought FedEx laid a big fat egg with its earnings report last week, then brace yourself for Nike's fiscal first quarter earnings due out after the close of trading on Thursday.
There are a multitude of increasingly brutal headwinds facing major retailers, ranging from a global economic slowdown to bloated inventories bloated ahead of the crucial holiday season to ongoing supply chain inflation to demand weakness in China to the U.S. dollar being at fresh 20-year highs weighing on corporate profits.
These concerns have Wall Street analysts poised for a dose of gloom from mighty Dow component Nike later this week and a potential further sell-off in the stock (shares are already down 12% in the past month).
"We think there's going to be a really, really tough holiday," Barclays retail analyst Adrienne Yih said on Yahoo Finance Live. "And part of this is really about the forward 2023 purchasing behavior in the wholesale channel. Remember, Nike still has about 55% of its business in the wholesale channel even though they're making great strides in moving to direct-to-consumer. So that's sort of the crux in the near-to-medium term."
Longtime Morgan Stanley retail analyst Kimberly Greenberger added insight on Nike pre-earnings in a recent note:
-
Price Target: $129 (lowered from $149)
-
Rating: Overweight (reiterated)
-
Stock price movement assumed: +37%
The "whisper numbers" on Nike's first quarter earnings may not be low enough, Greenberger hints — meaning many investors may be surprised negatively by the company's report and guidance.
"Taken together, we anticipate [selling, general, and administrative] conservatism and a stronger China bounce back are enough to offset North America/Europe weakness and gross margin pressure, enabling Nike to deliver $0.90 in 1Q23 EPS, roughly in-line with consensus at $0.92. And while Street sales/gross margin forecasts may prove optimistic, our investor conversations indicate the market is similarly anticipating softer 1Q23 revenue and gross margin trends, but in-line EPS. So the stock is likely already priced for this outcome."
Investors should expect a guidance warning from Nike, Greenberger's analysis suggests.
"To us, all of this increases the likelihood that Nike cuts its fiscal year guidance, and we subsequently trim our FY 2023 EPS forecast to $3.35 from $3.46 prior, at the low end of Nike's prior implied EPS guidance range (~$3.35-3.65). However, we caution that even our 10%-below-consensus EPS forecast does not contemplate a recession, and thus we see risk for further downside should a recession materialize in North America/Europe. Put simply, we see room Nike guides to an EPS outcome even below our revised $3.35 forecast. As it relates to positioning, investor guidance expectations appear mixed – some are braced for a cut (to ~$3.30 level, a touch below us), while others think Nike could reiterate prior guidance. This could lead to divergent stock reaction outcomes."