Nike’s Q1 Earnings Beat Expectations, but Stock Dips 7.85%

10月2日

Nike Inc. (NYSE: NKE) recently reported its Q1 earnings, which beat Wall Street’s expectations, but the company’s stock has since dropped by over 7%. This decline was primarily driven by the company's decision to withdraw its full-year guidance and postpone its long-awaited investor day. Investors are now left grappling with several fundamental and technical concerns as Nike undergoes significant leadership changes and faces headwinds in its core North American market.

Earnings Beat, Revenue Decline, and Leadership Transition
Nike (NYSE: NKE) exceeded analysts' earnings estimates for Q1, reporting earnings of 70 cents per share versus the expected 52 cents. Despite this, revenue fell by 10%, driven largely by a steep 11% decline in North American sales. North America, Nike's largest market, has been a significant point of concern, with sales missing the mark amid lower digital traffic and weak consumer demand. The company’s net income dropped by 28% year-over-year to $1.1 billion, reflecting a broader slowdown.

The most impactful development, however, was Nike's decision to pull its full-year guidance. The company cited a leadership transition, with Elliott Hill set to take over as CEO later this month, replacing John Donahoe. The withdrawal of guidance, along with weaker sales projections, has created uncertainty, leading to a 7.38% drop in pre-market trading.

Adding to the uncertainty, Nike postponed its first investor day in seven years, heightening concerns over how the leadership transition will affect its long-term strategy and financial performance.

Weaker Consumer Demand and Shrinking Margins
Nike’s CFO, Matthew Friend, emphasized the challenging environment, citing weaker digital traffic and reduced retail orders for the upcoming spring season. The company has also faced shrinking margins, primarily due to higher markdowns in an effort to offload inventory. Gross margins fell by 1.5 percentage points, further pressuring profitability.

The company now expects an 8-10% revenue decline in Q2, marking a significant drop from its earlier projections. Direct-to-consumer (DTC) sales fell by 13%, which has been a focus for Nike's growth strategy. The declining DTC sales add further pressure on its bottom line, as the company must now rethink its approach amid weaker-than-expected performance in both digital and retail channels.

Technical Overview
From a technical standpoint, Nike’s stock has been trading within a falling wedge pattern since its peak in November 2021. This classic chart pattern, characterized by converging downward trendlines, typically signals a bullish reversal once the stock breaks out. However, Wednesday’s sharp earnings-driven decline threatens to derail the recent upward momentum.

Nike (NYSE: NKE) shares rallied more than 25% from the lower trendline of the falling wedge in recent weeks, reflecting investor optimism surrounding the leadership transition. However, the current selling pressure following the Q1 earnings could see the stock retrace to key support levels.

Key Lower Price Levels to Watch
The $85 level will be a critical support zone for Nike. This level is linked to multiple peaks and troughs on the chart, stretching back to 2018. If the stock falls below this support level, investors should be prepared for a potential retracement to $79, where the stock is likely to find buying interest. This $79 level is significant, as it is supported by a multi-year trendline dating back to June 2018, making it a crucial point for bulls to step in.

Higher Price Levels to Watch for a Recovery
On the flip side, if Nike (NYSE: NKE) manages to stabilize and resume its bullish momentum, key resistance lies at $96, just above the 50-week moving average. This level coincides with a countertrend high from June, which could be a point where short-term traders look to book profits. If Nike can clear this level, it could continue rallying towards $104, where the stock may encounter strong overhead resistance near the falling wedge’s top trendline.

However, with significant uncertainty surrounding the company’s future earnings potential and the delayed investor day, Nike’s stock will need a strong fundamental catalyst to break through these resistance levels.

Gap Patterns: Potential for Volatility Ahead
Adding to the technical complexity, Nike’s stock chart shows a series of gap-down patterns that have yet to be filled. This suggests a high likelihood of volatility in the coming days and weeks. Historically, gap-down patterns tend to act as a magnet for price action, as stocks often attempt to fill these gaps during rallies. However, the recent series of failed attempts to fill these gaps suggests continued weakness, with sellers overpowering buyers at key price levels.

Conclusion
Nike’s Q1 earnings beat expectations, but the company’s decision to withdraw full-year guidance has created uncertainty that is weighing heavily on the stock. While the leadership transition brings some hope for a fresh strategic direction under new CEO Elliott Hill, the immediate outlook remains clouded by weak sales and shrinking margins.

Technically, Nike’s stock is at a critical juncture, trading within a falling wedge pattern with key support at $85 and resistance at $96. Investors should closely watch these levels, as a break below $85 could trigger a deeper retracement to $79, while a breakout above $96 could reignite bullish momentum.

In the near term, the stock will likely remain under pressure as investors digest the financial uncertainty and await further guidance from the company’s new leadership. With mixed reactions from analysts and several headwinds facing the company, Nike's path forward will not be straightforward.