Dow Jones forecast: Where next for Nike stock ahead of Q4 earnings?

Key takeaways

• Demand for Nike clothing has remained robust, but Nike has struggled to protect its bottom-line in the inflationary environment
• Has prompted Nike to shift focus to profitable growth
• State of inventory will be key to deciding profitability expectations in the new year
• Sales and margins should improve over coming 12 months, although threatened by China’s slower economic recovery and rising recession risks.
• Nike stock has struggled to recover heavy ground lost during the rout we saw in 2022

When will Nike report Q4 earnings?

Nike will report fourth quarter and full year earnings after US markets close on Thursday June 29. A conference call is scheduled on the same day at 1400PT.

Nike Q4 earnings consensus

Wall Street forecasts Nike will report a 2.7% year-on-year rise in revenue to $12.6 billion in the fourth quarter, while adjusted EPS is expected to drop 26% to $0.67.

Nike raised its full year guidance in the last quarter and said it expected to deliver high-single digit revenue growth compared to its previous goal of mid-single digit, and analysts believe it will achieve the top-end of that. That would put Nike on course to deliver 9% annual sales growth to $50.9 billion and a 13.5% drop in full year adjusted EPS to $3.24 if it meets those forecasts.

Nike Q4 earnings preview

Demand for premium athleisure wear has remained strong in a challenging time for the wider retail space, although Nike has struggled to protect its bottom-line in the inflationary environment. It is important to remember that earnings remain far above pre-pandemic levels, but Nike has still shifted its focus to profitable growth.

One of the biggest problems that Nike and other retailers have faced is too much inventory, which in turn has forced them to offer discounts in order to shift it. That eats into margins and raises costs, which has all been bad news for profitability at a time when expenses are already being pushed higher by inflation. Nike said it had made ‘tremendous progress’ with its inventory in the last quarter and that it is past the peak of its problems. Analysts believe inventory will be some 8.4% higher in the fourth quarter than the year before. That will be driven by higher input costs, which raises the value of its inventory, but would mark the slowest increase in 18 months to suggest Nike is on the right path.

Signs that it has shifted the bulk of excess inventory and entering the new financial year with a clean slate would be welcomed. One way Nike has tried to shift its inventory has been through its wholesale partners. Nike has been focused on building out its Direct-to-Consumer business over recent years and this has been delivering faster and more reliable growth, but its wholesale business is still its biggest sales channel.

Much of the onus will be on the outlook. Markets hope it can return to growth in the new financial year as comparatives are ironed out. Wall Street forecasts Nike can achieve 6.5% sales growth and target revenue of $54.2 billion while increasing adjusted EPS by over 20% to $3.90 over the coming 12 months. Its gross margin is also expected to recover back above pre-pandemic levels.

Commentary around China, its third largest market, will be key considering analysts anticipate a recovery will counter stable or softer growth in other regions, with Wall Street predicting a severe slowdown in North America as comparatives become tougher. China’s economic rebound since abandoning its fight against Covid-19 has not been as rapid as first hoped, threatening Nike’s outlook. Heightened fears of a recession and waning consumer confidence could also threaten its sales momentum in the new financial year as inflation and rising interest rates continue to hit the purse-strings of consumers.

Where next for NKE stock?

Nike shares have struggled to make a recovery from the rout we saw in 2022. Since bottoming-out last October, the stock has only managed to climb back to the 50% retracement, which proved to be too much resistance. It has since slumped back to test the 23.6% retracement at around $105, which appears to be providing support. We are therefore looking for the stock to breakout of this range.

More immediately, the stock needs to break above the 200-day moving average as this has proven a tough ceiling to break over the past two weeks. The short-term moving averages then come back into play before the 50% retracement is back on the radar.

A slip below the $105 level of support risks opening the door to a move back below $100. The 30-month lows we saw last October would then be back in play.

Dow Jones analysis: Where next?

Movements in the Nike share price will influence the Dow Jones Industrial Average considering it is a constituent with a weighting of over 2.4%.

The index has not been able to break above 34,589 over the past seven months but has been setting a series of higher-lows and helped by a supportive trendline since hitting the lows we saw last September. That is creating an ascending triangle pattern that is narrowing the band it can trade in, which should eventually lead to a breakout. Keep an eye on trading volumes when this occurs. Higher volumes can help confirm a breakout but, if they are weak, then it could signal a false breakout.

With that in mind, we are looking for the index to move either above that 34,589 ceiling or below the supportive trendline. If the trendline breaks, then we need to see if the next low is higher or lower than the last leg at 32,764, roughly in-line with the 200-day moving average.