Dow Jones forecast: How will Nike earnings impact NKE stock?

Key takeaways

• Nike has vowed to deliver a year of “profitable growth”
• But expect a tough start, with sales to grow at the slowest pace in over a year and earnings to fall for a third consecutive quarter
• Wall Street becoming more cautious as outlook for US consumer spending weakens as savings dwindle and student loan repayments restart
• Stabilization of inventory and strength of direct-to-consumer arm could allow Nike to outperform
• Nike shares are at an 11-month low, but still trades at a premium to its rivals
• Watch the Dow Jones, which has sunk to its lowest level in over three months

Nike Q1 earnings date and time

Nike is scheduled to release first-quarter earnings after US markets close on Thursday September 28. A conference call will be held on the same day at 1400 PT.

Nike earnings consensus

First-quarter revenue is forecast to rise 2.5% from last year to $13.00 billion, which would represent the slowest growth in over a year.

Adjusted EPS is expected to decline for a third consecutive quarter, this time by 20% to $0.74.

Nike earnings preview

Nike has said it expects to deliver another year of “profitable growth”, but it is clear that markets remain worried about the health of the retail sector. Nike shares are languishing at their lowest level in 11 months as investors fret that Nike could be a casualty as consumers tighten their belts.

US consumer spending, which accounts for about 65% of the country’s GDP, has remained buoyant for years but the outlook is weakening. The savings squirreled away after the waves of stimulus dished-out during the pandemic are expected to dwindle before the end of 2023, if not sooner, and the restart of student loan repayments, which were put on hold during the turmoil of the Covid-19 crisis, next month could also drastically lower the amount of money consumers, particularly younger ones, have to spend.

Commentary on North America will be key as this is where the slowdown is biting the most. In fact, constant-currency sales growth is expected to decline for the first time in over a year this quarter. We have already seen consumers spend less on discretionary goods and more on necessities, and forecasts suggests sales across the retail industry will grow at the slowest pace in five years over the busy holiday shopping season, according to Deloitte.

Elsewhere, the brakes are also being applied on growth in EMEA, Asia and Latin America. The outlook for China is also key after sales growth erupted in the last quarter following years of lockdown-induced troubles, and investors will want to know how sustainable this recovery is.

Jefferies downgraded Nike to Hold from Buy this week as a result of the increasingly challenging conditions for consumers, warning apparel, footwear and accessories are all at risk. The broker also has concerns over choppy sales in China. More broadly speaking, Wall Street remains bullish on Nike and see 35% potential upside from current levels, but the most recent updates have been more bearish than before and its target price has been consistently falling in recent months, with at least four cutting their view in the last week alone.

Therefore, Nike is under pressure to show it can shine during a tough time. Nike says it is on the “front foot” and competing from a “position of strength” amid the uncertain economic outlook. It also needs to show that inflationary pressures, which have contributed to lower earnings in six out of the last seven quarters (including Q1), are easing.

Nike has already shown some progress that bodes well on this front. One theme across the retail sector is that the shift in habits of consumers has left the industry with burgeoning inventories and stuck with goods nobody wants. That has forced many to cut prices in order to shift them out of warehouses and stores, which has hurt margins and profitability. Nike’s inventory started to stabilize in the last quarter and analysts believe it will fall over 9% in the first quarter.

Nike’s direct-to-consumer arm, which leverages the strength of its brand, could also keep sales growing. Sales to other retail stores are contracting and are expected to be down 3.9% in the first quarter, but its direct-to-consumer sales keep powering ahead and are forecast to be up 11.7%. Nike’s push to sell directly to customers online and through its own stores has been hugely successful so far considering it now makes over $5.5 billion in quarterly sales, up from less than $3 billion back in 2019.

Nike is aiming to deliver mid-single digit revenue growth over the full year as its direct-to-consumer business powers ahead and gross margins should bounce back as cost pressures subside. That suggests the weakness in the first quarter could provide an opportunity should investors grow confident that this will be another year of progress. Wall Street currently thinks this will be the worst quarter of the year and that we will see an acceleration in sales and earnings growth over the remaining three quarters, although the challenging economic landscape could put estimates at risk.

Nike still trades at a premium to its rivals despite the recent declines and, while well-earned, this may prove a limiting factor.

Where next for NKE stock?

Nike shares have been under pressure since early August and have declined for three consecutive weeks. We can see it has followed a downtrend for over six weeks and is now lingering at 11-month lows as a result.

The RSI suggests Nike shares haven’t been this oversold since 1998! That demonstrates the sharpness of the decline. The recently-hit 11-month low of $89.80 is now the immediate level to watch. However, there is little sign of support until $86, and it could slide to the 2022-low of $82 before finding the floor. The midway point of the parallel channel has been holding firm throughout September.

On the upside, shares would need to break out of the channel to install hopes it has found the trough and then break past the last high of $98. The oversold RSI suggests the selling pressure could subside and attract buyers back into the market, suggesting Nike shares could move a leg higher while still continuing its downtrend.

Dow Jones analysis: Where next?

Nike is one of the 30 stocks included in the Dow Jones Industrial Average. The index closed at its lowest level in over three months yesterday, having slipped below the 200-day moving average for the first time since May.

The index just about managed to hold above the 33,610 floor that held throughout most of June. The RSI is on the cusp of testing oversold territory, suggesting the selloff could take a breather. Any bounce may be short-lived and only allow the index to climb back toward 34,440, almost align with the 20-day moving average, to close the gap created last week following the higher for longer narrative from the Federal Reserve. A move below 33,610 could result in a sharper tumble toward the May-low at 32,760.