Nike's Set Up For Q2 Remains "More Balanced": Analyst Sees Less Negative Retailer Commentary

RBC Capital Markets analyst Piral Dadhania reiterated the Outperform rating on Nike, Inc. NKE, raising the price target to $127 from $120.

Nike has been one of the best performing stocks under the analyst's coverage L3M (+18%), largely driven by valuation re-rating as sentiment has turned less negative.

As a result, the risk/reward heading into 2Q24 results print is more balanced than the prior print, the analyst writes.

Expectations are slightly higher, particularly as FY24E current guidance implies healthy P&L acceleration (revenue growth and gross margin) in 2H24E, which remains a key feature for the near term equity story, per Dadhania.

2Q24E results should be underpinned by less negative retailer commentary and more resilient than expected consumer, the analyst notes.

For Q2, the analyst forecasts revenues of $13.32 billion, 43.9% gross margin (+100bps yoy), $1.57 billion EBIT (11.8% margin, -70bps yoy), and EPS of $0.83. 

For 2Q24E, the analyst anticipates Gr China to be the fastest growing region, with flattish growth for EMEA, and N America is likely to remain under pressure given wholesale channel drag. 

Website traffic trends have been flattish for a number of months for Nike, whilst social media momentum is best in class but moderating. 

Inventories should remain fairly stable at around $8.6 billion in 2Q24E (vs. 1Q24), and the analyst forecasts a free cash flow of $1.6 billion.

Price Action: NKE shares are trading higher by 0.12% to $121.32 on the last check Thursday.

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