Nike Stock Is Down 40% This Year Despite Strong Performance: What Will Today's Earnings Call Reveal?

Zinger Key Points
  • A stronger U.S. dollar is a cause for concern as foreign soil operations become less cost-effective.
  • This, plus a slowing consumer environment worldwide, led Telsey to cut its price target ahead of Nike earnings. 
Nike Stock Is Down 40% This Year Despite Strong Performance: What Will Today's Earnings Call Reveal?

Nike NKE will report its earnings for the fiscal first quarter of 2023 on Thursday after the market closes.

For those still holding on to Nike stock, the results will show where the sports apparel giant stands after having lost 45% of its market value since November 2021.

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Ripple Effects Of Global Instability: As a staple of the middle class, Nike’s earnings are tightly tied to economic swings. 

With more than half of its profit creation coming from outside the U.S., global political and economic events land as lightning strikes over Nike’s performance.

Disruptions in China due to ongoing COVID-19 lockdowns have affected sales. Rising energy costs in Europe associated with the Ukraine war could also affect sales this winter as the cost of living increases.

On Monday, analysts at Telsey Advisory Group lowered their 12-month price target on Nike from $130 to $125. The stock closed at $98.70 Wednesday. 

The firm projects earnings of 93 cents per share versus the FactSet consensus of 92 cents. 

A stronger U.S. dollar is a cause for concern as foreign soil operations become less cost-effective. This, plus a slowing consumer environment worldwide, led Telsey to cut the price target ahead of earnings. 

“Nike is being prudent and has taken a cautious approach given the lack of visibility into China, cost pressures, and uncertain economic environment,” said the analysts.

The firm remains encouraged by Nike's pipeline of product innovation, healthy demand, customer connectivity through digital and underlying gross margin improvement driven by the shift to direct-to-consumer.

The analysts expect Nike to outperform the market. As lockdowns in China likely ease in the coming quarters, the situation should improve toward the second half of 2023, according to Telsey. 

All in all, Nike’s business model continues to show solid fundamentals in spite of a general downturn, with a moderate-to-positive outlook in the medium term.

Market Correction? Nike’s value loss marks one of the largest drops among large-cap companies in the last year.

For Logan Kane at Seeking Alpha, Nike’s business model continues to be as strong as ever, with a bright future ahead.

Nike’s profitable business of selling each shoe wholesale at about twice its manufacturing costs became even more successful with the advent of e-commerce, which allowed the company to cut out the middleman and sell directly to consumers.

Kane said Nike’s massive drop in valuation is the result of an overvaluation late last year. The stock is now closer to the company’s fair value, he said. 

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