Morgan Stanley On Nike's FY24 Trajectory: A Mix of Optimism And Caution with Hints Of Potential Wholesale Restocking

Morgan Stanley analyst Alex Straton reiterated an Overweight rating on the shares of Nike Inc NKE and lowered the price target from $127 to $126.

The analyst expects a mostly in-line 1Q24 with an EPS estimate of $0.76. Also, potential revenue downside on weaker China could be offset by gross margin & SG&A upside.

Other areas of focus, according to the analyst, include inventory, NA wholesale, Greater China, & DTC/wholesale strategy color. 

After speaking with the Asia-based counterparts, the analyst anticipates NKE 1Q Greater China revenues could come in closer to the +MSD/HSD % percentage range driven by ~MSD % growth for stores & potentially better online growth. 

The analyst believes the 2Q guide could come in a touch light of Street expectations ($0.80 - $0.93 EPS range versus street $0.96), though the analyst thinks the market is mostly braced for this.

Consensus revenue & gross margin forecasts will be optimistic, though SG&A could prove an offset, said the analyst.

The analyst suspects a FY guidance reiteration is on deck, given the tough 2Q compare ahead & ongoing bloated channel inventory.

Also, the analyst sees some room for a possible raise later in the year on potential 2H wholesale re-stocking & against the low initial bar.

The potential catalysts for Nike, according to the analyst, are a further de-risking of FY24 guidance, high-single-digit percentage revenue growth back in the view, clarity on long-term DTC/wholesale split and long-term margins, and finally, leadership change.

Also Read: Nike Shares Are Down 22% This Year: Why 2 Analysts Are Going Long

Price Action: NKE shares are trading lower by 0.40% at $91.21 on the last check Friday.

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