Morgan Stanley analyst Alex Straton reiterated an Overweight rating on the shares of Nike Inc NKE and lowered the price target from $149 to $129.
The analyst believes both the topline and gross margin for Q1 FY23 could come in shy of consensus/guidance on softer demand and imbalanced inventory in North America and Europe, as well as forex headwinds.
In the analyst’s view, softer demand trends in the company’s two largest geographies (together 66% of FY22 total sales) likely prove enough to offset her view for potential Greater China topline upside.
Also, she anticipates selling, general, and administrative expenses conservatism and a stronger China bounce back are enough to offset North America, Europe weakness, and gross margin pressure, enabling Nike to deliver an EPS of $0.90 in Q1, much near the estimate of $0.92.
In Straton’s sportswear channel checks last week, sportswear retailers highlighted slowing summer demand trends, and industry-wide assortment imbalances on late/canceled deliveries have resulted in higher year-on-year promotional/discounting activity, denoting margin pressure.
Since the macroeconomic trends have deteriorated since Nike’s last guidance in June, the analyst feels the FY23 outlook likely needs to come down.
While the long-term opportunity remains compelling, macroeconomic deterioration & limited visibility makes the current discounted valuation fair, in Straton’s view.
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