shoe and apparel company Nike Inc. NKE beat Street’s estimates for first-quarter sales and earnings per share, but saw shares fall sharply after the market close on Thursday.
Investors and analysts now have some major concerns following the latest report.
The Nike analysts
- Morgan Stanley analyst Alex Straton is overweight and lowers the price target to $120 from $129.
- BMO Capital analyst Simeon Siegel has an outperform rating and lowers the price target to $110 from $128.
- RBC Capital analyst Piral Dadhania has an Outperformn rating and lowers the price target to $115 from $125.
- KeyBanc analyst Noah Zatzkin has a sector weight and no target price.
- Telsey analyst Cristina Fernandez has an Outperform rating and lowers the price target to $110 from $125.
See also: Nike Q1 Earnings Highlights – Sales & EPS Beat
The central theses
Straton maintains its overweight position in Nike but points to better opportunities elsewhere in the market.
“The discounted valuation feels fair for now, but it’s also a potentially attractive entry point for long-term investors,” Straton said.
The analyst called the first-quarter results a “wash.” Concerns over China, inventories and gross margins were among the points Straton highlighted: “Reduced guidance means fiscal 2023 is clearly shaping up to be a transitional year.”
For Siegel, Nike’s lack of margins are the big story. While the company beat earnings and revenue estimates, it missed analysts’ estimates for gross margin and also released guidance that came in below estimates going forward.
“Why force revenue when it will lead to EBIT declines? Sell less, charge more, make more,” Siegel said.
Nike has a competitive advantage over the long term, but remains cautious as inventories are elevated, indicating a high promotional cycle, Siegel explained.
Higher inventories in North America and Nike’s first-quarter results show the company…
