Nike's Fourth Quarter 'Not As Bad As Feared': Why 3 Analysts Are Lowering Price Targets

Apparel and footwear company Nike Inc. NKE reported fourth quarter earnings Monday after market close. Analysts size up the company’s revenue and eps beats with a cautious approach given gross margin and China business concerns.

The Nike Analysts: Wells Fargo analyst Kate Fitzsimons has an Overweight rating on Nike and lowers the price target from $150 to $130.

BMO analyst Simeon Siegel has an Outperform rating and lowers the price target from $142 to $128.

Telsey Advisory analyst Cristina Fernandez has an Outperform rating and lowers the price target from $140 to $130.

Related Link: Here's Why These Investors Are Cautious On Nike Stock Ahead Of Earnings 

The Analyst Takeaways: Fitzsimons points to Nike beating on revenue for the fourth quarter, but its earnings per share beat coming from a tax benefit.

“Nike’s 4Q print and FY23 guide left something to be desired given anticipation of a revenue and EPS catchup against last year’s supply-led constraints,” Fitzsimons said.

The analyst cautioned on China with sales down 20% in constant currency in the fourth quarter compared to a drop of 8% in the same quarter last year.

Strength was seen in North America and the EMEA region in the fourth quarter, which offset the weakness in China.

“While China remains a key question on the stock, the fact that the brand still guided revenues up low double digits in constant currency even with China weakness.”

One of the key items from Nike’s earnings report for Siegel was the company posting a gross margin miss to analysts expectations, which was the first miss since the global COVID-19 pandemic began.

“Although management provided reasons, too many quarters are needed explanations for why margins didn’t improve with DTC, and we continue to posit 4Q results appear the norm, not the exception,” Siegel said.

Direct-to-consumer was a bright spot for Nike in the quarter, but Siegel cautions this business line might not be “all it’s cracked up to be.”

Siegel notes that success of Nike lies in “DTC(hina) not DTC(onsumer.)”

Fernandez highlights the strength of direct-to-consumer in the fourth quarter and the strong demand seen from consumers for Nike products.

“All in, we view the 4QF22 result as mixed, albeit likely not as bad as feared,” Fernandez said.

The analyst notes Nike has a cautious approach for fiscal 2023 guidance, with a lack of visibility into the company’s China business.

“We remain encouraged by the pipeline of product innovation, healthy demand, customer connectivity through digital, and underlying gross margin improvement driven by the shift to DTC.”

NKE Price Action: Nike shares are down 4.6% to $105.83 on Tuesday, June 28, at the time of publication.