NIKE's Pre-Q2 Earnings Trends Appear Weak: Time to Invest or Wait?

NIKE Inc. NKE is slated to release second-quarter fiscal 2025 results on Dec. 19. The leading sports apparel retailer is estimated to have witnessed year-over-year declines in the top and bottom lines in the fiscal second quarter.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.The Zacks Consensus Estimate for fiscal second-quarter revenues is pegged at $12.2 billion, suggesting a 9.1% decline from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for the company’s fiscal second-quarter earnings is pegged at 64 cents per share, indicating a decline of 37.9% from the year-ago reported number. Earnings estimates for the fiscal second quarter were unchanged in the last 30 days.In the last reported quarter, the company delivered an earnings surprise of 34.6%. Its bottom line beat the consensus estimate by 29.5%, on average, in the trailing four quarters. Image Source: Zacks Investment ResearchEarnings Whispers for NKE SharesOur 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 -2.61% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.Trends to Watch Before NKE’s Q2 EarningsNIKE’s second-quarter fiscal 2025 performance is expected to have been affected by continued challenges related to lifestyle product sales, headwinds in the Greater China business, certain EMEA and other markets, and soft digital sales trends.NIKE has been grappling with challenges primarily from sustained weak sales in its lifestyle segment, a decline in digital revenues and difficulties in the Greater China market. These issues have led to a slowdown in revenue growth and compressed profit margins. The lifestyle segment, comprising men’s, women’s and Jordan lines, has struggled, especially in the digital channel. Rising inflation and higher interest rates have dampened consumer spending on discretionary items, making shoppers more selective — a trend particularly challenging for luxury retail brands in North America.This trend has been detrimental to other lifestyle and luxury brand retailers, and sporting goods companies in the United States, including lululemon athletica inc. LULU, Ralph Lauren Corporation RL and Crocs Inc. CROX.Additionally, recent trends indicate significant shifts in consumer traffic in Greater China, a key market for NIKE's global strategy. Declining brick-and-mortar traffic and lower sell-through rates have contributed to regional revenue declines. While management has tempered its near-term outlook for China, it remains confident in NIKE’s long-term competitive position in the region.NIKE, Inc. Stock Price and EPS Surprise  NIKE, Inc. price-eps-surprise | NIKE, Inc. QuoteOn the last reported quarter’s earnings call, NIKE expected revenues to moderate for the forward quarters. Amid these uncertainties and following a recent CEO transition, NIKE withdrew its fiscal 2025 guidance. However, the company provided quarterly guidance for the rest of fiscal 2025. For the second quarter of fiscal 2025, NIKE expects an 8-10% revenue decline and a 150-basis-point drop in the gross margin due to heightened promotional activity, channel mix pressures and supply-chain inefficiencies. SG&A expenses are projected to be flat, with higher demand-creation costs balanced by reduced operating overhead.However, 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 maintained a healthy inventory position at the end of first-quarter fiscal 2025. NKE’s inventory dollars were down 5% year over year in the fiscal first quarter, reflecting product mix shifts and lower product input costs. This is expected to have boosted its margins to some extent in the fiscal second quarter.The company has also been benefiting from its Consumer Direct Acceleration strategy. The company is intensifying its focus on sports, speeding up the introduction and expansion of products and innovations. NKE has also been enhancing its storytelling efforts with greater impacts and boldness while elevating the overall marketplace to strengthen brand distinction and align with consumer preferences. These actions are expected to have aided the top and bottom lines in the fiscal second quarter.NIKE Stock Price Performance & ValuationNIKE’s shares have exhibited a downward trend, shedding as much as 36.2% in the past year. The stock has declined against the broader Consumer Discretionary sector and the S&P 500’s growth of 14.6% and 28.6%, respectively. The NKE stock has also underperformed the industry’s decline of 30.3% in the same period.One-Year NKE Stock Performance Image Source: Zacks Investment Research At the current price of $77.25, NKE trades at a 9.2% premium to its 52-week low of $70.75. The current price represents a 37.4% discount to the 52-week high mark of $123.39.Despite this recent downturn, NKE’s valuation appears quite pricey. The company trades at a forward 12-month P/E multiple of 26.36X, exceeding the industry average of 23.43X and the S&P 500’s average of 22.69X.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 suffice 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 ResearchInvestment Thesis for NKE StockAs a dominant athletic footwear and apparel market player, NIKE has been benefiting from a combination of innovation, partnerships and effective marketing that fuels its revenue growth and profitability. The company continuously invests in cutting-edge product innovation, such as Flyknit and Nike Air, ensuring it stays ahead of the competition.NIKE’s digital transformation efforts, including its direct-to-consumer strategy, have accelerated e-commerce growth and reduced the dependence on wholesale channels. Its focus on digital platforms and personalized consumer engagement further enhances margins and improves operational efficiency.While NIKE's robust innovation pipeline, strategic initiatives and efficient inventory management may drive revenue growth in the long term, its near-term challenges in lifestyle products and Greater China cannot be ignored.ConclusionWith NIKE preparing to release its second-quarter fiscal 2025 results, investors may wonder if now is the right time to buy the stock. The company’s strong market position and strategic initiatives lead to a positive outlook, making it an attractive option for those seeking exposure to a global leader in the athletic and lifestyle sectors with significant growth potential and a focus on shareholder value.However, challenges in the lifestyle segment, Greater China and broader economic pressures should not be overlooked. Evaluating these factors ahead of the earnings release can provide a clearer basis for investment decisions.While NIKE’s long-term prospects remain solid, investors should avoid rushing into decisions. For current NKE shareholders, holding onto the stock might be wise, as the upcoming earnings report could offer valuable insights into the company’s trajectory.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>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 Ralph Lauren Corporation (RL): Free Stock Analysis Report lululemon athletica inc. (LULU): Free Stock Analysis Report Crocs, Inc. (CROX): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks