Nike Has Long Runway Growth With Focus On Direct Sales, Margin Growth: Analyst React To Q4

Shares of Nike Inc NKE hit a 52-week high Friday after reporting a strong fourth quarter that beat Street consensus.

Here is the reaction from analysts on the key takeaways from the earnings report and if Nike has more room to run.

The Nike Analysts: Bank of America analyst Lorraine Hutchinson maintains a Neutral rating on Nike and raises the price target from $150 to $168.

RBC Capital analyst Beth Reed has an Outperform rating and raises the price target from $165 to $183.

Telsey analyst Cristina Fernandez has an Outperform rating and raises the price target from $160 to $180.

Earnings Takeaways: Nike continues to focus on a shift to digital sales instead of relying on physical retail stores and partners. The company has a goal of hitting 50% digital revenue, Hutchinson points out.

“While a strong track record of innovation gives us confidence that the goals are attainable over the long-term, management did highlight a nonlinear improvement,” Hutchinson said.

Direct-to-consumer is another key takeaway from Nike’s fourth quarter for Reed, who said "The company plans to grow direct to 60% of sales by FY25."

Nike’s goals on direct-to-consumer and digital could help improve margins Reed notes.

“It is clear that the compounding earnings growth story still has plenty of runway ahead.”

North American sales were strong in the fourth quarter including footwear up 136% and apparel up 156%, Fernandez highlights in the updated note.

Fernandez said that existing franchises such as Air Force 1, Air Jordan 1 and the new Jordan Zion 1 all had strong sales in the fourth quarter, highlighting the dominance of Nike in footwear. Jordan was the fastest-growing brand for the company up 31% in the fourth quarter.

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China: One item that still needs clarity for analysts is Nike’s China business segment.

“While we are encouraged by the long-term guidance, uncertainties around the China recovery keep the risk/reward balanced,” Hutchinson said.

China's revenue was up 17% year-over-year for Nike. The company sees China's revenue growing in the mid-teens going forward.

“We expect the recovery to take time and model muted 1H China growth with some margin pressure until inventory normalizes in late 2Q,” Hutchinson said.

April calls to boycott Nike and other global brands continued to hurt Nike in the fourth quarter. Reed pointed to trends improving in the past couple months.

“Nike had a strong March but April was soft and May was down single-digits,” Fernandez said on Nike’s China business for the fourth quarter.

What’s Next: Hutchinson raises the price target with higher earnings per share, revenue and gross margins coming in the next fiscal year.

Nike gave annual guidance and also outlined estimates through fiscal 2025, which came as a surprise to Hutchinson.

The updated price target from Reed implies a 40x to earnings per share, which would be above Nike’s historical average. Reed notes that the category leadership and significant runway should lead to Nike’s multiple rising.

Nike’s shift to direct-to-consumer and digital will help with margins and could also strengthen relationships with its largest partners.

“Over time, it expects to work with fewer but larger strategic partnerships which include Foot Locker, Dick’s Sporting Good and JD Sports (Finish Line),” Fernandez said.

NKE Price Action: Shares of Nike are up 15.50% to $154.35 Friday at market close, passing a previous 52-week high of $147.95.