Nike’s Troubles Could Persist After Poor Results & Stock Slump

2 июл.Less than a year after posting its longest losing streak on record, Nike’s stock registered its worst day ever, erasing nearly $20 on Friday. The collapse came after the sportswear giant reported poor Q4 FY2024 results and offered disappointing guidance. Revenues shrank 2% y/y, the most in four years, with executives expecting a stepper decline of 10% in the current quarter. But the bad news stop there, as they also reversed their full FY25 outlook, now seeing a mid-single digits drop.

The firm faces increased competition from startups like On running, while Adidas seems to be regaining its stride. Nike’s direct-to-consumer pursuit gave way to competitors and proved to be a mistake. Sales in Greater China grew in the reported quarter, but the was mainly due to the 6.18 promotional festival and this critical region remains a source of uncertainty.

At the same time the external environment remains unfriendly for discretionary goods, as US inflation lingers, borrowing costs remains high, the excess pandemic savings that supported spending are now gone and credit card delinquencies are rising. The Consumer Discretionary SPDR ETF (XLY) gains less than 5% YTD as the S&P500 soars, but over performs compared to Nike’s nearly 30% YTD losses. It is clear that Nike’s problems are likely to persist and continue to weigh on the stock. Friday’s historic plunge exposes NKE to the 2020 lows (60.00).

On the other hand, Nike’s leadership has been taking action to mitigate the issues. It is putting emphasis back on third party vendors, sales through which increased in the last quarter. It is cutting costs, which helped its gross margins and net income to widen in Q4FY24. Nike is also refocusing on innovation, which could help it regain its edge over rivals. The two major sporting events of the summer, the Euro 2024 football championship and the Paris Olympics, can help it regain its appeal. The turnaround efforts create optimism for the future, but they will take time and the next few quarters are likely not going to be easy.
Technically the drop of NKE is stretched and a rebound would be reasonable. However daily closes above the EMA200 (black line) would be needed for the bearish momentum to pause and that does not look easy under current conditions.



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