NIKE Faces Headwinds Pre-Q3 Earnings: Smart Buy or a Risky Bet?

NIKE Inc. NKE is slated to release third-quarter fiscal 2025 results on March 20. The leading sports apparel retailer is estimated to have witnessed year-over-year declines in the top and bottom lines in the fiscal third quarter.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.The Zacks Consensus Estimate for fiscal third-quarter revenues is pegged at $11.1 billion, suggesting a 10.6% decline from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for the company’s fiscal third-quarter earnings is pegged at 28 cents per share, indicating a decline of 71.4% from the year-ago reported number. Earnings estimates for the fiscal third quarter were unchanged in the last 30 days.In the last reported quarter, the company delivered an earnings surprise of 23.8%. Its bottom line beat the consensus estimate by 29.8%, on average, in the trailing four quarters.Earnings WhispersOur proven model does not conclusively predict an earnings beat for NIKE this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.NIKE has an Earnings ESP of -6.90% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.What’s in Store for NKE in Q3 Earnings?NIKE's third-quarter fiscal 2025 results are expected to reflect ongoing challenges, including weak lifestyle product sales, sluggish digital revenues, and headwinds in Greater China and certain EMEA markets. These factors are expected to have contributed to slower revenue growth and margin pressure in the to-be-reported quarter.The lifestyle segment, comprising men's, women's, and the Jordan lines, has been facing persistent struggles, particularly in digital channels. Macroeconomic factors like inflation and rising interest rates have curbed discretionary spending, posing difficulties for premium brands in North America. In Greater China, shifting consumer behavior, lower foot traffic and weaker sell-through rates have pressured regional revenues. While NIKE has moderated its near-term expectations for the region, management has been optimistic about its long-term market position.On the last reported quarter’s earnings call, the company forecast a low-double-digit year-over-year revenue decline for the fiscal third quarter, impacted by CEO Elliott Hill’s strategic actions and foreign exchange headwinds. However, NIKE expects some benefit from the Cyber Week's timing shift into the fiscal third quarter.NKE expects the fiscal third-quarter gross margin to decrease 300-350 basis points (bps) year over year. SG&A expenses are estimated to see a slight reduction, reflecting restructuring charges from the prior year. The company anticipates other income and expenses, including net interest income, between $30 million and $40 million. Our model projects the gross margin to decline 300 bps to 41.8% for third-quarter fiscal 2025. We predict SG&A expenses of $4.1 billion for the quarter, suggesting a 2.6% year-over-year decline. As a percentage of sales, SG&A is anticipated to rise 290 basis points to 36.9%.NIKE, Inc. Price and EPS Surprise  NIKE, Inc. price-eps-surprise | NIKE, Inc. QuoteHowever, NKE’s strategic pricing and supply-chain optimization, including logistics, inventory management and distribution, are expected to have cushioned the bottom line in the to-be-reported quarter. Effective inventory management strategies have been another critical component of NIKE's success.The company continues to prioritize sports performance, accelerating product innovation and storytelling to enhance brand appeal. Its innovation pipeline, driven by initiatives like Speed Lane, aims to bring new fitness and lifestyle franchises to market faster. NIKE expects these innovations and focus on its sports performance product category to have supported its fiscal third-quarter performance.The company is intensifying its focus on sports, speeding up the introduction and expansion of new products and innovations. NKE is also enhancing its storytelling efforts with greater impact and boldness while elevating the overall marketplace to strengthen brand distinction and align with consumer preferences. Additionally, the company is accelerating its innovation pipeline, advancing several innovations. It is taking bold steps to reclaim its leading edge in innovation. Focus on its sports performance product category has been the key to its strategy.In the second half of fiscal 2025, the company expects to see additional innovations be launched from Speed Lane, including several exciting new franchises in fitness and lifestyle, boosting performance in the to-be-reported quarter.NIKE is transitioning its digital strategy toward a full-price model, reducing reliance on promotions. At the start of fiscal 2025, digital sales had shifted to a nearly 50-50 split between full-price and discounted items. This strategic pivot, alongside efforts to boost organic traffic and enhance consumer engagement, is expected to have supported digital sales in the to-be-reported quarter. NIKE is also leveraging value stores to clear excess inventory, reinforcing its premium positioning while optimizing sales performance.NIKE’s Price Performance & ValuationNKE shares have exhibited a downward trend, shedding as much as 26.8% in the past year. The stock has lost against the broader Consumer Discretionary sector and the S&P 500’s growth of 2.3% and 9.5%, respectively. The NKE stock has also underperformed the industry’s decline of 23.6% in the same period.NIKE's performance is notably weaker than its close competitors, including Wolverine World Wide WWW and Adidas ADDYY, which rose 34% and 11.1%, respectively, in the past year. NKE also underperformed Skechers’ SKX decline of 18.2% in the past year.NKE’s One-Year Stock Performance Image Source: Zacks Investment Research At the current price of $74.17, NIKE trades at an 8.1% premium to its 52-week low of $68.62. The current price represents a 27.6% discount to the 52-week high mark of $102.49.Despite this recent downturn, NKE’s valuation appears quite pricey. The company trades at a forward 12-month P/E multiple of 33.24X, exceeding the industry average of 26.98X and the S&P 500’s average of 20.63X.Given the premium valuation, investors could face significant risks if the company's future performance does not meet expectations. The Consumer Discretionary market is becoming increasingly competitive and NIKE’s initiatives may not be sufficient to drive significant growth. Macroeconomic challenges and heightened competition could impede the company's ability to sustain its current growth trajectory. Image Source: Zacks Investment Research Investment ThesisAs a dominant athletic footwear and apparel market player, NKE has been showing some promise through CEO Elliot Hill’s strategies, crafted around transitioning its digital platform to a full-price model, scaling back performance marketing investments and refining its production and distribution strategy.While these efforts are expected to create long-term value, they are expected to lead to some short-term revenue challenges. The weaker guidance for the third quarter of fiscal 2025 dampens near-term growth prospects. Also, its near-term challenges in lifestyle products and Greater China cannot be ignored.ConclusionAs NIKE prepares to report its third-quarter fiscal 2025 results, investors may question whether now is the right time to buy. The company’s strong market position and strategic initiatives support a positive long-term outlook, making it an appealing choice for those seeking exposure to a global leader in the athletic and lifestyle sectors with growth potential and a commitment to shareholder value.However, headwinds in the lifestyle segment, challenges in Greater China, and broader economic pressures warrant careful consideration. Assessing these factors ahead of the earnings release can help investors make more informed decisions.While NIKE’s long-term growth prospects remain strong, a cautious approach is advisable. For existing NKE shareholders, holding the stock may be a prudent move, as the upcoming earnings report could provide key insights into the company’s future direction.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report NIKE, Inc. (NKE): Free Stock Analysis Report Skechers U.S.A., Inc. (SKX): Free Stock Analysis Report Wolverine World Wide, Inc. (WWW): Free Stock Analysis Report Adidas AG (ADDYY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks