Nike Earnings: Brand Investments Look Promising, but Near-Term Outlook Is Dim; Shares Undervalued

Wide-moat Nike matched our forecast with flat sales growth in its third-quarter fiscal 2024 (end-February), but this result was overshadowed by guidance for a low-single-digit percentage sales decline in first-half fiscal 2025. This outlook suggests that subpar consumer demand for sportswear in North America, China, and other key markets is likely to persist longer than many industry participants have anticipated. As such, our forecast for Nike to rebound to 7% sales growth in fiscal 2025 is likely out of reach and we expect to lower our $136 fair value estimate by a mid-single-digit percentage. Even so, we think investments in products, marketing, and its supply chain will allow it to regain lost share and outpace market growth when sportswear demand improves. Historically, investing in Nike’s shares in difficult periods has been a very successful strategy.