Nike Takes The Markdown Medicine Now For Healthy Inventory In FY24, Says Analyst - Nike (NYSE:NKE)

Raymond James analyst Rick Patel reiterated an Outperform rating on the shares of Nike Inc NKE and raised the price target from $130 to $135.
Nike Q3 revenue increased 14.0% Y/Y, well ahead of the Street estimate.
Direct continued to be strong at 22% y/y as Nike’s structural shift towards a bigger Direct-to-Consumer model continues, noted the analyst.
Wholesale sales increased 18% y/y due to strong demand for seasonal products and higher shipments due to earlier supply availability.
The analyst views NKE as leaning into Wholesale more aggressively than it historically has as it seeks to right-size inventory.
Given the magnitude of the strength over the past couple of quarters, and still-somewhat high inventory existing F3Q, the analyst sees the potential for upside again in F4Q.
In the analyst’s view, the clearest drivers of revenue growth in FY24 include ongoing mix shifts towards Direct as NKE seeks 60% penetration, accelerating revenue growth in China on the reopening and easy comparisons, and higher average selling prices on fewer y/y markdowns and the likelihood of price increases as NKE seeks to offset cost inflation.
The 325 basis points contraction in gross margin to 43.3% was attributed to higher markdowns, higher input costs, elevated freight/logistics costs, and FX partly offset by strategic pricing actions.
The analyst continues to believe NKE has room to recapture “trapped GM%” from transitory issues, which will become more evident in FY24.
The analyst models China growth accelerating over the next few quarters and model FY24 China revenue +13% y/y.
Nike appears to be taking more aggressive action to work through excess and now plans to be in a healthy inventory position by the end of FY23, said the analyst.
Price Action: NKE shares are trading lower by 3.00% at $121.84 on the last check Wednesday.
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