On Thursday, Citi revised its price target for Nike (NYSE:NKE) shares, traded on the New York Stock Exchange under the ticker NYSE:NKE, to $125 from the previous $135, while still recommending a Buy. The adjustment comes in anticipation of the company's third-quarter 2024 earnings, which are expected to be released after the market closes on March 21.
The firm anticipates Nike's earnings per share (EPS) for the third quarter to be $0.86, which is higher than the consensus of $0.75.
However, this forecast does not include approximately $0.10 of restructuring charges related to selling, general and administrative expenses (SG&A), which may affect the comparability to guidance and consensus figures, potentially aligning the EPS with expectations once these costs are factored in.
Recent sentiment towards Nike has been notably negative, particularly concerning revenue growth. In North America, inventory levels have improved, but promotions are still high, and retail orders are being placed with caution. The market in China and Europe continues to experience volatility. Additionally, survey results suggest that competitor Adidas (OTC:ADDYY) may be regaining market share globally.
Due to these market headwinds and a lack of significant new innovations, Citi has lowered its fiscal year 2025 sales estimates for Nike to a 3.5% increase, which is below the consensus of a 7% rise. The firm anticipates that Nike's management might set a guidance for low single-digit (LSD) revenue growth for fiscal year 2025 during the upcoming earnings call.
Despite the challenges, Citi remains optimistic about Nike's profit margins, expecting gross margin (GM) and SG&A improvements to drive a higher EBIT margin into fiscal year 2025. The report suggests that any potential revenue reset could lead to short-term share price declines but advises that such dips could present buying opportunities for investors.
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