Shares of Nike and its competitors saw a significant increase on Friday, following the release of the athletics-gear company's impressive earnings report. This positive performance is a much-needed boost for Nike and is expected to have a positive impact on the entire sportswear sector.
Pre-market Trading Shows Promising Results
Nike (ticker: NKE) stock surged by 7.9% to $96.70 in premarket trading on Friday, after revealing better-than-expected guidance alongside its first-quarter earnings. This surge comes as a relief for investors, as the stock had experienced a 23% decline up until Thursday's closing due to concerns over a slowdown in China and high inventory levels. Notably, the earnings report was released after the market closed.
Analysts' Positive Outlook
Jefferies analyst James Grzinic expressed optimism regarding Nike's financial performance, stating that investors are likely to react positively to the news. Grzinic emphasized several key positives, including Nike's decreasing inventory and its maintained guidance for sales growth and improved gross margin.
Grzinic also highlighted the company's success in the Chinese market, despite a highly promotional environment. He noted that Nike still managed to increase full price sales, which is an encouraging sign.
Jefferies' Rating and Target Price
Athletic-Gear Sector Experiences Positive Lift
The athletic-gear sector has seen a significant lift in response to recent results. On Holding (ONON) saw a 6.7% increase in premarket trading on Friday, while Foot Locker (FL) rose by 3.0% and Under Armour (UA) experienced a 1.3% growth. Additionally, Skechers USA (SKX) rose by 0.5% in after-hours trading on Thursday, and Dicks Sporting Goods (DKS) saw a 1.7% increase.
Notably, Nike's European competitors, Adidas (ADS.Germany) and Puma (PUM.Germany), also profited from this trend with climbs of 5.8% and 5.5%, respectively.
While industry analysts acknowledge that Nike's outlook provides some relief in challenging times, they are not confident in the rally's sustainability.
Analyst Ashley Owens from KeyBanc stated, "Recovery in the back half remains intact, for now, though growth in North America is likely to remain challenged as we lapse two strong quarters of growth from 2Q/3Q 2023. Additionally, we believe that Greater China improvements are to remain muted in the near term due to ongoing foreign exchange headwinds." Owens maintained a Sector Weight rating on the stock without specifying a price target.
Similarly, analyst Mitch Kummetz from Seaport Research provided a Neutral rating on the stock without assigning a price target. He argued that Nike continues to lose market share in running shoes to HOKA, owned by Deckers Outdoor (DECK), as well as privately owned New Balance.