Shares of athletic footwear and apparel giant Nike (NYSE:NKE) have declined nearly 25% over the past year, lagging the broader market. The company has been losing market share to emerging players and established rivals due to the lack of innovative offerings. Wall Street is divided on Nike stock. Some analysts believe that the company will regain its lost mojo, backed by its initiatives to revamp its business, efforts to refocus on innovation, and cost reduction measures. However, others are cautious due to several near-term headwinds, including macro pressures and rising competition.
Nike is Losing Ground to Peers
Last month, Nike reported upbeat results for the third quarter of Fiscal 2024, driven by higher pricing and better-than-anticipated performance in North America. Meanwhile, the company’s revenue from the Europe, the Middle East and Africa segment declined 3%, while revenue from China increased 5%.
Investors were disappointed with Nike’s guidance. The company expects its FY24 revenue to grow by about 1% and warned of a low single-digit decline in its top line in the first half of FY25. The lackluster outlook reflects the impact of increasing competition from innovative products offered by On Holding, Hoka [owned by Deckers Outdoor (DECK)], New Balance, and Lululemon (LULU). These companies are addressing customers’ need for comfortable athleisure products.
In fact, rival Adidas (ADDYY) recently announced strong Q1 2024 results, driven by the demand for its “terrace” sneakers, which are casual in style and made of high-quality material.
Nike recognizes the fact that it needs to address changing consumer needs. In its Q3 FY24 earnings call, CFO Matthew Friend admitted that “NIKE needs to be faster.” Consequently, the company is accelerating its multi-year innovation cycle.
It is also worth noting that the company is focusing again on its wholesale channel after ending deals with some wholesale partners in recent years to boost its direct-to-consumer business. Some analysts contend that Nike’s lesser exposure to the wholesale channel in key categories, like running footwear, resulted in its underperformance compared to fast-growing brands like Hoka and On Holding.
Analysts’ Divided Opinions on NIKE Stock
On April 9, Piper Sandler analyst Abbie Zvejnieks reiterated a Hold rating on NKE stock with a price target of $98. Following a Generation Z survey of more than 6,000 U.S. teens, the analyst noted that Nike continued to be the No. 1 favorite brand across apparel, athletic apparel, footwear, and athletic footwear. That said, Piper Sandler noted weakness in Nike’s overall brand mindshare (a term that describes the extent of consumer awareness or popularity for a product or company).
In particular, mindshare in the footwear category fell 190 basis points (bps) year-over-year and 225 bps from fall 2023. Similarly, Nike lost 70 bps of apparel mindshare sequentially.
Also, in athletic footwear, the brand’s mindshare fell 330 bps sequentially among upper-income teens and 510 bps year-over-year, as brands such as Hoka, On Running, and New Balance grabbed share. NKE also lost its share among average-income teens in athletic footwear. Zvejnieks thinks that these share losses reflect Nike’s lagging product innovation.
In contrast to Zvejnieks’ cautious stance, Bank of America analyst Lorraine Hutchinson upgraded NKE stock to Buy from Hold and raised the price target to $113 from $110, noting that the consensus estimates are bottoming and look achievable. The analyst highlighted that the company is taking “bold” steps to transform its business.
Hutchinson views the upcoming Olympics, Nike’s Investor Day, and the continued shakeup in the team as potential catalysts for NKE stock.
Is NKE a Good Stock to Buy?
With 15 Buys, 13 Holds, and one Sell, Nike scores a Moderate Buy consensus rating on TipRanks. The average NKE stock price target of $111.92 implies 18.4% upside potential.
Conclusion
Nike’s lack of innovation, intense competition, and ongoing macro pressures are weighing on its performance. Wall Street is cautiously optimistic on NKE stock, given the near-term pressures. Nonetheless, several analysts are confident that the company will bounce back with the help of its revived focus on innovation and ongoing restructuring efforts.
