NKE Taps 13-Year Lows After Earnings: Can Company Step Up Turnaround Story?

SPEAKER_1 (0:01)

We're back on Morning Trade Live. Let's focus on the chart for Nike. It's not pretty. The stock hitting 13-year lows this morning after reporting earnings late yesterday.

Not enough to impress the street. It just hasn't managed to convince investors about this turnaround strategy, particularly with the softness that we're seeing in China, a key market that it's struggling in. We are combing through some of the analyst commentary this morning, so let's get some of this reaction. It is the focus of the morning trade. Nike, let's get out to Marley Kayden for a look at this. Marley, you and I were breaking down the numbers. We saw the initial reaction. We know the report. What happened post conference call? What are the sell side analysts saying this morning as to why we are trading at 13 year lows this morning?

Marley Kayden (0:45)

It's all about the turnaround story this morning, Sam. I mean, as you mentioned, we covered the earnings live yesterday. A mixed bag here, but overall disappointing for Nike certainly wasn't what investors wanted to see.

And the sell side is reacting to the general negativity and the lack of evidence that the turnaround is really taking hold here. There's also some other things at play here, announcing more layoffs and this new pace plan, this overhaul financial plan that's targeting about two and a half billion dollars in cumulative savings through fiscal 2031 at a cost of a billion dollars in pretaxed charges. That's mostly employee related. That is going to result in fewer roles across Nike. Elliot Hill coming out in a note and saying he wants to acknowledge that that note creates uncertainty and he doesn't take that lightly.

But these layoffs are going to start in 2027 and they come after Nike already cut 800 warehouse jobs in January and about 1400 corporate roles back in April. But as far as the numbers go, revenue coming in at $11.21 billion, that was down more than 4%. It missed the estimates. Earnings came in at $0.48 per share. That was slightly ahead of expectations on a wider gross margin.

But it wasn't enough after seeing Nike's descent throughout the year to make investors feel better. Sam, they fell out of the S&P 100 after nearly 20 years in the index. They're down roughly close to 50 percent year to date. As you mentioned, a lot of that weakness in greater China, revenues down 22 percent there. They did see a small amount of growth in the North American segment, 2 percent that helped offset that, but it's tepid at best. Net income was also lower by 2 percent from the previous year. So as we look across the sell side here, I saw downgrades from several firms. Wells Fargo dropping their price target to $30 from $40. Right now, we're trading at $33.31. They did keep an equal rate rating. They said sentiment remains subdued as ever, but Q1 was still worse than expected. The bar was low and they didn't clear it. Headwinds across Jordan Sportswear in China are simply too big and are causing the P&L to collapse and visibility remains low. That's from Wells Fargo.

Citi also lowered their price target to $32 from $39. They keep a neutral rating. The company reported the beat, they say, but on weaker sales and better spending. They say that the fiscal 2020 is having sales guidance of down high, single digits is below the market consensence. And Nike is, quote, turning into a cost cutting story. That's what Citi says. B of A lowered their target down to $24 from $30. They have an underperform rating, saying the company's earnings report that visibility on the sales turnaround remains limited. I also signed up from Williams Trading, downgrading Nike to hold from buy. They have a price target of $30 down from $42. They continue to believe that Nike is doing what they call taking the appropriate actions to write its business, but the problems are greater than previously believed. I think that's the overarching theme, that there doesn't seem to be a real solution that has any visibility to it here at least from the sell side.

A lot of mention about the upcoming investor day in November though, and what the company will say there, Sam. So a potential catalyst for Nike in November.

SPEAKER_1 (4:05)

Yeah, it's interesting they still got a believer in BTIG. I mean, they did lower the price target to $50, but they kept a buy rating on the shares. I mentioned when we were covering these earnings yesterday, I mean, they still believe that the market needs to be patient with this one, encouraged by the margin estimates actually, margins coming ahead of estimates. So look, still waiting for that turnaround, but as I said, they still are willing to be patient, it seems, with this buy rating. But Marley, thanks so much for breaking down all the details on that trading down 5% right now, $33 and change. So let's trade it now with Dan Deming, managing partner at KKM Financial. Dan, a disappointing report here, but how would you approach an example trade?