Nike has a long road ahead to win customers back

When I was a kid, Nike was the pinnacle of cool footwear.

Of course, there were other competitive athletic shoe brands like Reebok and Adidas, but thanks to its brand partnerships with NBA stars such as Michael Jordan and Penny Hardaway (ok, now I’m dating myself), Nike (NKE) always stood head and shoulders above the rest.

That success carried on for decades after the 90s, thanks to Jordan Brand and an increasingly popular apparel subdivision. But somewhere along the way, someone convinced Nike that it was a smart move to give up the retail shelf space it had spent decades monopolizing in favor of a direct-to-consumer online sales model.

At first, the DTC model was praised by Wall Street analysts across the board, leading to an all-time stock high of $161.92 on Nov. 5, 2021.

But there has been a steady decline since then as competitors started filling the shelf space that Nike abandoned, and the company’s prediction of an online retail-first future did not come to fruition.

Also read: Invest in Nike? Only With Your Money

Nike’s DTC revenue fell 9% year over year to $4.1 billion in the quarter, while its Jordan Brand revenue (which represents 13% of global business) fell in the mid-teens.

Earlier this month, Nike released its first quarter results, sending shares to multi-year lows as revenue declined year over year and the company’s EPS guidance fell short.

Now, in a note shared with TheStreet, analysts at Deutsche Bank said Nike has a long way to go to regain its former glory.

Deutsche Bank plots “long road ahead” for Nike

Nike shares closed the Oct. 9 session slightly down to $34.71. Shares are trading at about a fifth of their all-time high reached five years ago and are down about 50% from their 52-week high of $70.44.

Deutsche Bank analyst Krisztina Katai sees a long road ahead.

Concerns about revenue persist as Nike shared earnings guidance well below expectations. Nike expects to earn between $1.15 and $1.35 per share this fiscal year, below Wall Street’s consensus of $1.66 per share, while revenue is expected to decline in the high-single-digit percentage range.

“NKE’s EPS reset was deeper than expected (we were at $1.44 ahead of the print),
and the key investor question is whether this marks the final estimate cut. While
FY27 guidance may provide a near-term floor for earnings revisions, we continue
to see a turnaround that remains in the middle innings, with Sportswear, Jordan,
and China still under pressure,” Katai said in a note to subscribers this week.

According to her, Nike’s path to an annualized EPS above $2 per share is a five-year plan. So there won’t be a quick inflection coming anytime soon. Nike reported an annual EPS of $3.73 as recently as fiscal 2024, according to Macrotrends.

What are the Nike bulls getting wrong?

As Katai points out, Nike bulls argue that the new EPS guidance is actually a good thing because it puts a floor on estimate revisions in the near term, giving the company’s management a more favorable setup should they be able to execute.

It seems like a classic case of underpromise and overdeliver. However, there are issues with that line of thinking.

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“Bears counter that Jordan remains early in its turnaround, Sportswear trends continue to deteriorate, and the innovation pipeline is unlikely to offset ongoing marketplace inventory actions over the medium term,” Katai said.

According to Deutsche Bank, the underlying operating data supports the bear view of Nike stock as seasonality did not help Nike overcome the issues from its most recent quarter.

“Despite a quarter that should have benefitted from major football-related demand drivers, footwear and apparel units declined -5% and -2%, respectively (vs. -4% and -8% in 4Q), while footwear average selling prices decelerated sequentially to -1% YOY from flat in 4Q,” Katai said.

“For our part, while we acknowledge that FY27 guidance may establish a near-
term floor for estimates, we remain cautious on the longer-term path. Core Nike Sportswear represented roughly 50% of 1Q27 revenue, and when combined
with Jordan, nearly two-thirds of the business is still undergoing portfolio
repositioning.”

Deutsche Bank lowers Nike estimates and price target

With DB analysts clearly in the bear category, the first lowered its estimates across the board. Now its fiscal 2028 and 2029 estimates sit 17% and 18% below Wall Street’s consensus, respectively, with revenue forecast to continue to fall in fiscal 2028 before returning to modest growth in fiscal 2029.

Deutsche Bank lowered its price target to $33 per share from $37 while maintaining its “hold” position on the stock.

But the firm also cited downside risks that include stalling growth in North America, signs of elevated wholesale inventory, and elasticity impacts from tariff-driven price increases.

Related: Nike making its most famous sneakers harder to buy