Wholesale Strategy Debate May Deter Incremental Buyers Despite Nike's Q4 Performance: Morgan Stanley

Morgan Stanley analyst Alex Straton reiterated an Overweight rating on the shares of Nike Inc NKE and lowered the price target from $130 to $127.

Nike reported a Q4 revenue growth of 10% Y/Y to $12.82 billion, beating the analyst consensus of $12.59 billion.

EPS of $0.66 missed the analyst consensus of $0.67.

The results reflected better-than-expected revenue & gross margin, offset by higher SG&A on higher wages, variable DTC costs, & increased demand creation expense, said the analyst.

While the analyst views the 4Q23 report as mostly as expected, it has to be acknowledged the EPS miss is NKE’s first ex-COVID EPS miss for the company since 4Q19.

The wholesale deceleration on the back of partnership news with Macy’s Inc M & Designer Brands Inc DBI was arguably better than feared, added the analyst.

The 16% y/y China revenue growth fell short of the buyside’s 30%+ bogey, & represented NKE’s lowest underlying growth rate of the year, the analyst noted.

The analyst said wage inflation, variable DTC costs, & increased demand creation spend pushed SG&A growth to 8%.

NKE exited 4Q23 with inventory flat y/y, continuing the trend with its third decline in mid-single digit% reduction q/q.

While NKE certainly screens clean on an inventory to forward sales basis & management indicated the retail channel seems healthy as well, the analyst admits the recent sportswear channel checks suggest otherwise.

The contacts the analyst spoke with confirmed sportswear inventory remains bloated industry-wide,with NKE no exception, & could remain that way through NKE’s 1H24.

The analyst specified that Nike’s mostly as-expected 4Q23 print and better-than-feared initial FY guide seemed enough to stem further pressure from the bears near-term but not stellar enough to embolden the incremental buyer to step in.

The ongoing wholesale strategy debate may prevent the cautious incremental buyer near-term, concluded the analyst.

Also Read: What 4 Nike Analyst Think Of The Q4 Print After Earnings Miss

Price Action: NKE shares are trading lower by 2.69% at $110.32 on the last check Friday.