Where will Nike stocks be in 1 year?

NIKE (NKE -1.97%) it has often been considered a safe stock for long-term investors. It is the largest shoe company in the world by annual revenue, has a lot of brand recognition and pricing power, and is worn by many popular athletes.

But over the past 12 months, Nike shares have fallen nearly 20% and are trading more than 50% below their all-time high since November 2021. Let’s see why bulls have shunned this iconic footwear stock and whether it can bounce back in the year ahead.

Image source: Getty Images.

His troubles began almost a decade ago

In 2015, Nike set a goal of generating $50 billion in revenue in fiscal year 2020 (which ended in May 2020). That would have represented a compound annual growth rate (CAGR) of 10% on its revenue of $30.6 billion in fiscal 2025.

The company aimed to expand its Nike Direct channel (which houses its e-commerce site and brick-and-mortar stores) and its international business. Nike also expected sales in China to increase and offset slower growth in more mature markets.

But in reality, Nike’s revenue only grew at a 4% CAGR to $37.4 billion in fiscal 2020. The softness of its Converse brand and sluggish sales in North America and Europe offset the resilience of its namesake brand and its growth in China. Its growth was further hampered by the bankruptcy of retailer Sports Authority in 2016, which flooded the market with excess inventory, and the onset of the COVID-19 pandemic in the second half of fiscal 2020.

Nike disappointed investors by missing its $50 billion target, but the company bounced back quickly from the pandemic as its revenue grew 19% in fiscal 2021, 5% in fiscal 2022 and 10% in fiscal 2020 2023. That recovery was largely driven by expansion. of Nike Direct, which increased its share of Nike’s top line from 37% in fiscal 2021 to 42% in fiscal 2023.

What happened in the last year?

Nike Direct’s expansion was aimed at reducing its reliance on wholesalers, giving the company tighter control over pricing and gross margins, collecting more customer data to shape its sales strategies and building its brand awareness.

But this strategy was a double-edged sword as it increased operating expenses and ceded wholesale channels to other shoe manufacturers. Over the past year, Nike Direct’s growth has cooled as headwinds have reduced the market’s appetite for its lower-end products. The company was unable to offset this slowdown by shrinking its wholesale channel, and sales growth flattened in constant currency terms.

Data source: Nike. Neutral currency. YOY = Year Over Year.

Nike’s North American sales fell in fiscal 2024, and that slowdown fully offset its growth in China and other overseas markets. Nike’s revenue remained nearly flat on a reported basis in fiscal 2024, and that slowdown is expected to deepen with a single-digit decline in fiscal 2025. Analysts expect the company’s revenue to decline 5%.

Nike’s gross margin rose 110 basis points to 44.6% in fiscal 2024 as it increased prices on premium products and benefited from lower shipping and logistics costs. Earnings per share (EPS) also rose 15% for the year, but analysts are bracing for a 21% decline in fiscal 2025 as sales growth evaporates.

Where will Nike stocks be in a year?

Nike CEO John Donahoe expects fiscal 2025 to be a “year of transition” as the company begins a “multi-year innovation cycle,” invests in more “consumer-facing activities” and rebuilds relationships with retailers with the retailer to help grow its sales in the long run. .

But those plans don’t really address the intense competition Nike still faces from other established shoemakers such as sneakersnewcomers agile ca On Holdingand the athleisure leader Lululemon — which has significantly expanded its footwear business over the past two years. And in China, Nike still has to stay ahead of formidable domestic competitors such as Anta Sports (which owns the Chinese rights to FILA) and Li-Ning.

Nike’s outlook for a 10- to 30-basis-point expansion in its gross margin in fiscal 2025 implies the company’s pricing power is still intact, but it could eventually be forced to increase markdowns if sales don’t pick up. stabilizes over the next few quarters.

Nike’s business won’t collapse anytime soon, but the company needs to prove that its opaque “transition” strategies can actually stabilize sales and earnings growth. Its stock still doesn’t look like a bargain at 26 times forward earnings, and its low forward dividend yield of 1.8% won’t limit downside potential as long as CDs and T-bills yield near 5% So for now, I think Nike stock could stagnate over the next 12 months and underperform the broader market.