Nike challenged by 'unprecedented macro headwinds' ahead of earnings, analyst says

Wall Street is slashing earnings expectations for Nike (NKE) two weeks ahead of its next quarterly report.

One of the analysts who recently lowered his price target for the sneaker giant explained that his decision was motivated by inventory and other headwinds.

“In the near term, they're dealing with unprecedented macro headwinds: inventory levels, FX movements, European consumer that's now under incredible pressure,” John Kernan, Cowen’s managing director for retail and consumer brands, said on Yahoo Finance Live (video above). “So I think when you look at what they already issued guidance for the full year, I don't think they're going to be apt to change that much. They certainly have to take up their headwind guidance.”

Nike shares have been under pressure this year, down roughly 35% year-to-date. In late June, Nike stock slumped further after issuing single-digit revenue growth expectations for the full-year 2023.

Kernan recently moved his price target down marginally from $127 to $124. In a recent note to clients, he stated Cowen expects Nike to lower growth estimates, citing the company still battling a strengthening U.S. dollar and inventories remaining high across North America.

"Nike's overall inventory dollars in North America were up 44% in its most recent quarter," Kernan said. "I think inventory levels will remain high. We've seen that in the channel play itself out in very heavy apparel promotions throughout the sector. And whether it's Nike, Adidas, Under Armour — everyone's been a bit more promotional recently.”

Consumers 'under a lot of inflationary pressure'

Nike’s current challenges aren’t unique across the sector.

In another recent retail note, Kernan noted that brands like Nike, Adidas (ADDYY), and Under Armour (UAA) are facing consumers “trading down.”

With inflation remaining near 40-year highs, high-end consumers have appeared to be more resilient than some of the consumers normally buying at Adidas, Under Armour, and Nike, according to Kernan.

A woman displays the Nike swoosh logo during the Got Sole Sneaker Convention in Miami on June 26, 2022. (Photo by CHANDAN KHANNA/AFP)
A woman displays the Nike swoosh logo during the Got Sole Sneaker Convention in Miami on June 26, 2022. (Photo by CHANDAN KHANNA/AFP) (CHANDAN KHANNA via Getty Images)

Athleisure brand LuLulemon (LULU) has shown strength amid the inflationary environment, most recently beating Wall Street earnings expectations and raising full-year guidance.

“There's not a lot of other companies in the space in my sector that are poised to raise guidance,” Kernan said. “So Lululemon stands out — great product cycle in men's and women's. Others we've seen become much more promotional. And it's really due to the fact that the lower- and middle-income consumer is under a lot of inflationary pressure.”

Despite the inflationary environment, Kernan still maintains an Outperform rating on the stock, stating that many of the headwinds are near-term concerns and not emblematic of Nike’s larger trajectory.

"The long-term Nike story, the long-term margin expansion, the shift to DTC, the shift to e-commerce creates a tremendous amount of earnings growth long term," Kernan said.

Nike is set to report its Q1 2023 results on Sept. 29.

Josh is a reporter and producer for Yahoo Finance.

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