Nike’s stock plunged by almost 8% on New York Stock Exchange (NYSE) during early trading on Friday following the company’s announcement that it anticipates a decline in sales during the first half.
This projection comes as Nike shifts focus from older styles to more fashionable sneakers in its competitive battle for market dominance against emerging brands.
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“What we heard on this quarterly call was that the merchandise margin recovery was coming slower largely due to management actions (reducing core product lines) and that sales through 1H25 would remain in negative territory,” Barclays analyst Adrienne Yih, was quoted as saying by Reuters
The brokerage Barclays slashed its price target by 20% to $114, marking the most significant adjustment on Wall Street following the latest results. Investors were particularly attentive to executives’ remarks, highlighting Nike’s prolonged direct-to-consumer (DTC) strategy’s failure to spur growth as anticipated. Consequently, the leading sportswear manufacturer is pivoting its focus towards revitalizing relationships with its wholesale partners.
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“Nike’s distribution strategy is all over the place. Problem is customers want to buy Nike everywhere so reducing wholesale dramatically seems like the wrong move in hindsight,” Jefferies analyst Randal Konik was quoted as saying.
The company’s direct-to-consumer (DTC) initiatives have been hindered by slow demand in North America. Lululemon Athletica, a competitor, reported a decline in annual revenue and profit due to decreased demand primarily in the same region, leading to a 14% drop in its shares on Thursday.
Over the past year, Nike’s stock has depreciated by 16% in value. Nike’s forward price-to-earnings ratio, a standard measure for assessing stock value, stands at 24.84. In comparison, Adidas and Puma boast forward price-to-earnings ratios of 52.08 and 15.31, respectively.
(With inputs from Reuters)
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Published: 22 Mar 2024, 08:57 PM IST