Sportswear giant Nike (NYSE:NKE) is set to announce its fiscal Q3 2024 earnings after tomorrow’s closing bell. With a year-to-date loss of nearly 8%, NKE is one of the worst-performing components of the Dow Jones Industrial Average this year. Last year, Nike stock fell 7.2% in 2023, despite strong double-digit returns in the broader markets.

Nike’s stock reached an all-time high of over $173 in November 2021. Currently, it trades around 42% below those highs and has closed lower every year since then, despite the S&P 500 Index reaching new record highs.

After releasing its fiscal Q2 earnings last December, Nike’s stock plummeted. Will the upcoming earnings report bring any changes? Here’s what to anticipate and whether NKE stock is a buy before its earnings release.

Nike Q3 Earnings Preview

Analysts project Nike’s fiscal Q3 revenues to decline 0.8% year-over-year to $12.3 billion. During the previous earnings call, Nike had warned that its fiscal Q3 revenues would be slightly lower year-over-year due to challenging comparisons with the previous year.

In the Q2 earnings call, Nike also revised its full-year revenue growth forecast to only 1%, down from the previous mid-single-digit revenue growth guidance.

Commenting on the reduced guidance, Nike’s CFO Matt Friend stated, “This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA, adjusted digital growth plans based on recent digital traffic softness and higher marketplace promotions, life cycle management of key product franchises, and a stronger U.S. dollar that has negatively impacted second-half reported revenue versus 90 days ago.”

Analysts expect Nike’s earnings per share to decrease by 12.7% in the fiscal third quarter, but anticipate nearly a 32% year-over-year increase in earnings for the current quarter.

What To Watch For in Nike’s Earnings Report

Aside from the usual earnings metrics, here’s what I’ll be watching for when Nike reports its earnings:

Guidance: I’ll be monitoring comments on the guidance for the current quarter to gauge whether the company still expects low single-digit revenue growth in the final quarter of the fiscal year.

China Performance: Nike blamed a worse-than-expected slowdown in China for lowering its full-year guidance during the previous earnings call. With significant revenue exposure to China, Nike’s comments on this market will be crucial.

Jordan Brand Performance: Analysts have expressed concerns about Nike’s product launch strategy, particularly its Jordan brand. Updates on the performance of key product franchises, like the Jordan 11, will be important.

Product Innovation: Nike has been criticized for lagging in product innovation. Updates on new product launches and innovations will be key to evaluating the company’s growth potential.

Nike Stock Forecast Ahead of Earnings

Analysts’ opinions on Nike before earnings are mixed. While one analyst downgraded the stock to “sell,” another labeled it his “best idea” for the year.

According to the optimistic analyst, Nike’s management is preparing for multiple product launches to drive top-line growth in the second half of 2024 and into 2025.

Overall, Nike has a “Moderate Buy” rating from analysts. Of the 30 analysts covering the stock, 16 rate it as a “Strong Buy,” while 3 say it’s a “Moderate Buy.” Ten analysts rate the stock as a “Hold,” while 1 has given it a “Strong Sell” rating. Nike’s mean target price of $122.52 is 22.5% higher than yesterday’s closing price.

Should You Buy NKE Stock Before Earnings?

While expectations for Nike this quarter are modest, the recent underperformance of the stock could lead to a post-earnings spike if the company delivers decent results.

However, considering the economic challenges in China, major positive surprises in the report are unlikely. From a longer-term perspective, Nike’s valuations have become more attractive, with the stock now trading at a next 12-month price-to-earnings multiple of 25.9x, lower than its historical averages. Nonetheless, the company needs to regain investors’ confidence in its growth story before commanding a premium valuation again.

Despite short-term headwinds, I believe Nike should eventually recover in the medium to long term, especially as strategic initiatives like product innovation and cost reductions begin to show results.

Featured Image: Unsplash @ Luis Felipe Lins

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