Nike stock took a sharp decline on Friday following its second-quarter earnings report. Despite surpassing expectations, concerns over the company's sales outlook have led two Wall Street analysts to downgrade their ratings on shares.
In Friday's trading session, Nike stock experienced a significant 10% drop, settling at $109.95.
The downward trend can be attributed to the company's announcement on Thursday that it expects a softening of sales for the remainder of its fiscal year ending in May. According to management commentary, this decrease in sales is primarily due to cautious consumer spending in China and Europe.
In response to this slowdown, Nike has outlined a plan to save $2 billion over the next three years. The company aims to achieve these savings through a variety of measures, including simplifying its product assortment, implementing automation, and streamlining management layers. Chief Financial Officer Matthew Friend emphasized that the majority of these savings will be reinvested back into fueling growth.
Following the news, John Kernan from Cowen downgraded Nike's shares from Buy to Hold and lowered the price target from $129 to $104. Similarly, Zachary Warring from CFRA downgraded Nike's shares from Hold to Sell, with no change in the price target of $91.
Kernan justified his rating by stating that investors need not pay a higher price for shares based on future profit, especially given the uncertainty surrounding the timing and impact of the cost-cutting initiatives.
Both analysts cited competition from other brands as a factor influencing their decisions. Notably, Deckers Outdoor-owned HOKA and On are gaining popularity among runners and pose a threat to Nike's market share.
Despite these downgrades, the majority of Wall Street remains bullish on Nike. Citi's Paul Lejuez and over 20 other analysts tracking the stock have maintained Buy ratings.
Lejuez even characterized the recent selloff as a buying opportunity, expressing confidence in Nike's management's dedication to driving profitability. Lejuez predicts that the stock will reach $135.
In August, _ named Nike as one of its stock picks.
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