Nike Stock Drops After Barclays Downgrade on Rising Inventory Risk

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By Senad Karaahmetovic

Shares of Nike (NYSE:NKE) are down almost 3% in premarket trading Tuesday after a Barclays analyst downgraded to Equal Weight from Overweight and cut the price target to $110 from $125 per share.

The analyst outlined 5 key factors behind the downgrade to EW: 1) bearish Wholesale sector demand risk thesis, 2) continued volatility in China Market, 3) excess North America inventory, 4) potential demand erosion in both North America and EMEA, and 5) FX headwinds, mostly in Europe.

“We believe the fall/holiday season will continue to be highly promotional across U.S. Retail and worry the wholesale portion of NKE’s business could begin to see slowing receipts in spring ‘23,” the analyst further said in a client note.

As for its FQ1 earnings report, the analyst sees in-line sales and EPS if the company pulls back on demand creation.

“We believe such a composition of the quarter would be low quality, and we are more interested in current and forward-looking demand trends and future margin risk,” the analyst added.

On China, the risks are increasing and not even North America outperforming again could be enough to subsidize weaker results in China.

“Wholesale channel risk could keep NKE range bound until there is greater visibility,” the analyst concluded.