Nike (NKE) is bringing a new CEO on board, and while investors can accept a certain level of uncertainty, the future is definitely unclear for the company. Even though Nike’s latest round of quarterly results included a bottom-line beat of Wall Street’s expectations, I am neutral on NKE stock. The company’s decision to withhold the full-year sales guidance makes me question whether Nike’s management is confident about a clear turnaround plan.
Nike is a footwear and athletic apparel giant, but it’s also a cyclical business that’s still reeling from persistent inflation and high interest rates. Those macroeconomic factors might be subsiding now, yet it’s up to Nike to prove that it can successfully navigate a CEO change. Elliott Hill, a former Nike executive, will be replacing the outgoing CEO John Donahoe.
While we’ll certainly take note of Nike’s earnings beat, investors should remember that NKE stock fell nearly 7% during the trading day that followed the release. Investors and analysts are preoccupied with what lies ahead for the company.
Taking Nike’s EPS Beat into Context
For the first quarter of Fiscal Year 2025, Nike managed to surpass Wall Street’s consensus earnings estimate of $0.52 per share. The company earned $0.70 per share, which looks like a great result.
However, analysts may have set a low bar for Nike to clear, with Barron’s suggesting, “Many analysts had been bracing for a soft first quarter from Nike.” The EPS posted for the quarter actually reflected a 26% year-over-year decline. Investors seem focused on the worrying trend here, and so am I. Accordingly, my rating for NKE stock is neutral. The technical earnings beat doesn’t render insignificant the notable year-over-year decline.
Nike’s Digital Sales Decline
Nike’s bottom-line results don’t tell the full story about its Q1 FY2025 results. The company’s top-line results also support my neutral, stay-on-the-sidelines position when it comes to NKE stock. In particular, Nike’s revenue dropped 10% year-over-year to $11.6 billion, and that’s worrisome even though this result was roughly in line with Wall Street’s forecast. Again, investors might wonder whether analysts had set a low bar for Nike to clear – and disappointingly, the company didn’t surpass those low expectations.
Here’s what really caught my eye: Nike’s first-quarter Fiscal Year 2025 Direct segment revenue (reflecting online apparel purchases) fell 13% year-over-year to $4.7 billion. What drove this unsettling result? Nike cited a 20% drop-off in NIKE Brand Digital sales for the quarter.
Nike CFO Matthew Friend stated that a “comeback at this scale takes time,” but a 20% fall in NIKE Brand Digital revenue indicates that the timeline of Nike’s so-called comeback could test investors’ patience. I’m staying neutral until there’s more encouraging data to bolster the bullish side of the debate.
Nike’s Big Transition and Withdrawn Guidance Add to the Uncertainty
In August, Nike announced that the company will replace current CEO John Donahoe with Elliott Hill, who will officially take over the reins on October 14. Some may speculate that Nike used this transition as an excuse to withhold its full-year Fiscal 2025 sales guidance and delay an important investor event. Here is Nike’s statement on this matter:
“Given the Company is reporting Q1 results in the midst of a CEO transition, it will address its approach to guidance on the conference call. In addition, the Company’s previously announced Investor Day is being postponed.“
Nike declined to provide sales guidance for full FY2025 and, as you just read, postponed its previously announced Investor Day event to an undeclared future date. This move, according to CFO Friend, will give Nike’s new CEO the “much-needed flexibility to evaluate Nike’s strategies and business trends.” That’s all fine and well, but these moves also add to the sense of uncertainty surrounding Nike. Is the company lacking confidence in its near-term future? Will Hill be able to enact a successful company turnaround and do better than the departing CEO did? These questions are up in the air, and it may be an uncomfortable time for cautious investors to hold Nike shares.
Is Nike Stock a Buy, According to Analysts?
On TipRanks, Nike Inc. comes in as a Moderate Buy based on 13 Buys and 15 Hold ratings assigned by analysts in the past three months. The average NKE stock price target is $92.72, implying about 13% potential upside.
If you’re wondering which analyst you should follow if you want to transact in NKE stock, the most profitable analyst covering the stock (on a one-year timeframe) is Sam Poser of Williams Trading, with an average return of 22.72% per rating and an 81% success rate.
Conclusion: Should Investors Consider Nike Stock?
Nike and its new CEO will have a lot of work to do. Even though the company’s quarterly EPS technically beat estimates, it still represents a setback as compared to last year.
Additionally, Nike’s sales fell on a year-over-year basis, particularly in the area of digital sales. That’s troubling, and it’s happening during a time of transition. Moreover, Nike’s refusal to provide a full-year sales outlook further clouds the crystal ball. Therefore, I am staying neutral and will wait for more data to rely on before considering an investment position in NKE stock.
