’Back to square one:’ Nike dips premarket as Berenberg cuts to Sell
Investing.com -- Nike shares fell more than 1% in premarket trading Tuesday after Berenberg downgraded the sportswear maker to Sell from Hold and cut its price target to $27.50 from $49, saying the company has accepted a smaller place in sportswear.
Analysts led by Nick Anderson said Nike’s plan to organize sportswear around smaller focus areas "reads as an admission that market structure has shifted irreversibly against Nike." Lower barriers to entry force incumbents to compete with a growing number of challengers across fragmented niches, or cede share, they wrote.
Analysts said the performance business continues to work, with sales up by a high-single-digit percentage in the first quarter. Running, football, North American basketball, tennis and golf all grew by double digits. But the larger sportswear category, just under half of group sales, fell by a low-double-digit percentage, while Jordan dropped by a mid-teens percentage.
That drag drives Nike’s guidance for a high-single-digit percentage sales decline in fiscal 2027, they added. China is the starkest example. Despite being a core focus of Nike’s "Win Now" actions since December 2024, sales there are set to shrink for at least another quarter, and Berenberg said a recovery is not assured, since rebuilding the brand requires re-educating consumers over several years.
Inventory clean-up is also dragging. The analysts said China and sportswear present the biggest challenges and are likely to take past 2027, and they noted Nike was "conspicuously silent" on fiscal 2027 gross margin guidance, which they see as signaling significant risk.
With revenue under pressure through fiscal 2028, management "sounding tired," and little help from the company’s Pace restructuring until fiscal 2029, Berenberg cut its estimates. It lowered sales by 6.5%, 11% and 13% for fiscal 2027 through 2029, and EPS by 38%, 46% and 34%. It now sees fiscal 2027 EPS of $1.08.
Pace backloads $2.5 billion of savings through fiscal 2031, with most benefits in fiscal 2029 and 2030, while front-loading $1 billion of pre-tax charges.
The $27.50 target applies Adidas’s 18.1 times 20-year average price-to-earnings multiple to Nike’s fiscal 2029 EPS estimate, since Berenberg says Nike’s premium valuation "looks unjustified."