Nike slips as Jefferies cuts on pressured wholesale channel and weak consumer

Shares of Nike (NYSE:) are down 1.3% in pre-open trading Monday after earning its fourth Wall Street downgrade so far this year.

Jefferies analysts lowered their rating on the footwear giant to Hold from Buy and slashed their price target to $100 from $140.

“We see incremental risk ahead for NKE as the wholesale channel is likely to remain pressured and growth in China faces macro headwinds,” the analysts commented in a note to clients. Further, the findings from a Jefferies consumer survey suggest that American consumers are inclined to curtail their expenditures in the near future, with clothing and footwear emerging as the prime candidates for reduced spending.

The analysts commented that despite overall retail inventory improvements, tight inventory management may continue through the year-end, reducing replenishment orders and pressuring Nike’s wholesale channel. While Nike aims to boost DTC sales, the current consumer climate might delay progress, with a projected 44% increase in F’23 versus the 60% long-term target. This could jeopardize the company’s F’25 goal of achieving a high-teens operating margin.

In addition, growth in China near term could be challenged. “While trends in China have been okay in recent quarters, we believe growth remains challenged given the macroeconomic headwinds in the region,” the analysts said. “We think NKE’s sales trends in this region could be choppy given the recent slowdown in apparel retail sales in China (see herein), and we are modeling 7% growth in F’24 vs. cons. of 12%.”

According to a recent U.S. consumer survey by the firm, individuals burdened with student debt express worry about covering their monthly expenses. Notably, the survey indicates that clothing, accessories, and footwear are poised to see decreased expenditures. Specifically, 54% of respondents intend to reduce spending on clothing and accessories, while 46% plan to cut back on footwear expenses. Furthermore, 51% plan to purchase fewer items or reduce their shopping frequency for clothing and accessories (48% for footwear). As a consequence, they anticipate that U.S. consumer spending will face mounting pressure in the near future.

Jefferies is lowering F’24 revenue and EPS estimates to $52.1B and $3.45, versus the consensus of $53.6B and $3.72. For 1Q, they are now forecasting sales of $12.8B and EPS of $0.72, versus the consensus of $13.0B and $0.75.

Shares of Nike are down 22.4% this year as of Friday’s closing price.