Nike's Product Innovation Is The Most Important Catalyst For The Stock, Analyst Says

BofA Securities analyst Lorraine Hutchinson reiterated the Buy rating on the shares of Nike Inc NKE with a price forecast of $90.00.

Nike’s management is taking swift action to adjust the market and clear out old inventory, making room for new products to be launched, said the analyst.

The analyst projects third-quarter EPS of $0.22 and expects third-quarter results will be less important than the overall message regarding the current stage of the product reset cycle and the signs that new products are gaining traction.

Prior to 2020, management typically offered guidance for future years in the third quarter, and last year, they provided broad guidance for F25.

As circumstances have shifted, uncertainty around the product reset and broader consumer spending trends may lead management to delay offering an F26 outlook until the next quarter.

Also Read: Nike Q3 Earnings Preview: Sales Decline, Margin Contraction, Key Areas To Watch

While the analyst anticipates management might offer some insights into the expected margin recovery for F26, it would be surprising if detailed earnings guidance for F26 is provided.

In the near term, the analyst continues to expect that sales and margins will experience a more significant impact in fourth-quarter compared to third-quarter.

The analyst sees margin risks in the third quarter as management focuses on reducing lifestyle inventory through actions like wholesale buybacks and markdowns in preparation for new products in key sports categories.

One such action involves buying back products from retail partners, which will increase inventory on the balance sheet. The analyst notes that short-term margin pressure actually improves the stock outlook, as it indicates that Elliot Hill’s strategy of quickly clearing the way for new products is progressing as intended.

The wholesale results are expected to outperform DTC in the coming quarters as partners stock up on holiday products.

During the earnings call, major product revelations might not be made, but it will be watched for early successes, such as with the Vomero 18 or Pegasus Premium in running or in basketball.

The analyst notes that signs of product success will be the key catalyst to re-engage investors with the stock.

Price Action: NKE shares closed lower by 0.53% at $73.31 on Tuesday.

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