Why is NIKE Stock Price Dropping? Is it right time to invest? All you need to know about it.

Why is NIKE Stock Price Dropping?

NIKE is one of the world’s leading sports brands, offering a wide range of athletic footwear, apparel, equipment, and accessories. The company has a strong global presence, with operations in over 170 countries and regions. NIKE’s mission is to bring inspiration and innovation to every athlete in the world. However, NIKE’s stock price has been on a downward trend since September 2023, when it reached its all-time high of $173.12 per share. As of December 22, 2023, NIKE’s stock price closed at $108.04 per share, down by 37.5% from its peak. What are the reasons behind NIKE’s stock price decline? In this blog, we will analyze the factors that may have contributed to NIKE’s underperformance and explore its prospects.

Why is NIKE Stock Price Dropping?

Lowered Revenue Guidance

One of the main reasons for NIKE’s stock price drop was its lowered revenue guidance for the fiscal year 2024. On December 21, 2023, NIKE reported its second-quarter earnings, which beat analysts’ expectations on both revenue and earnings per share. However, the company also cut its fiscal-year revenue guidance by about $2 billion, citing supply chain disruptions, labor shortages, and consumer spending slowdowns.

NIKE said that it expects its fiscal-year revenue to grow by mid-single digits, down from its previous forecast of low double digits. The company also said that it expects its gross margin to decline by 125 basis points, due to higher costs and lower average selling prices. This disappointed investors and analysts, who expected NIKE to maintain its strong growth momentum.

NIKE’s supply chain issues have been affecting its ability to meet the demand for its products, especially in North America, its largest market. The company said that it faced inventory shortages, port congestion, factory closures, and transportation delays, which reduced its revenue by about $1 billion in the second quarter. NIKE also said that it expects these challenges to persist in the second half of the fiscal year, impacting its revenue by another $2 billion.

NIKE’s consumer demand has also been affected by the macroeconomic environment, which has been slowing down due to the resurgence of the COVID-19 pandemic, inflation, and geopolitical tensions. The company said that it saw a moderation in consumer spending, especially in discretionary categories, as well as a shift in consumer preferences towards value-oriented products. NIKE also said that it faced increased promotional activity from its competitors, which put pressure on its pricing power.

China Headwinds

Another reason for NIKE’s stock price drop was its challenges in its second-largest market, China, where it experienced a slowdown in demand and a backlash from consumers over its stance on human rights issues. NIKE’s sales in China fell 11% in the second quarter, compared to a 21% increase in the same period last year.

NIKE said that it faced a deceleration in consumer demand in China, due to the COVID-19 outbreaks, lockdowns, and travel restrictions, which affected its retail and e-commerce operations. The company also said that it faced a negative impact from the boycotts and protests that erupted in March 2023, after NIKE and other Western brands expressed concerns over the alleged use of forced labor in the Xinjiang region.

NIKE said that it remains committed to its social responsibility and ethical sourcing practices, and that it does not source any products from Xinjiang. However, the company also acknowledged that it has lost some market share and consumer loyalty in China, and that it needs to rebuild its brand image and trust with the Chinese consumers. NIKE said that it is investing in its digital capabilities, product innovation, and local partnerships, to regain its growth potential in China.

Competition and Inflation

A third reason for NIKE’s stock price drop was its increased competition from rivals such as Adidas, Puma, and Lululemon, who offered more innovative and affordable products. It also faced higher costs due to inflation, tariffs, and transportation, which squeezed its profit margins and reduced its pricing power.

NIKE said that it faced a more competitive landscape in the sports industry, as its competitors launched new products and categories, expanded their distribution channels, and increased their marketing spending. It faced a shift in consumer preferences towards casual and athleisure wear, which benefited its competitors who had more exposure to these segments.

NIKE said that it faced higher input costs, such as raw materials, labor, and energy, due to the global inflationary pressures. The company also said that it faced higher tariffs on its products imported from China and Vietnam, due to the ongoing trade disputes between the U.S. and these countries. NIKE also said that it faced higher transportation costs, due to the limited availability and increased prices of air and ocean freight.

NIKE said that these factors have impacted its gross margin, which declined by 150 basis points in the second quarter, to 43.1%. The company also said that it expects its gross margin to decline by another 125 basis points in the fiscal year, due to the unfavorable mix of products, channels, and geographies, as well as the increased promotional activity and inventory obsolescence. NIKE said that it has limited ability to pass on these costs to its consumers, due to the competitive environment and the consumer spending slowdown.

What big investors are doing with NIKE stock?

Some of the big investors of NIKE stock are buying or selling their shares in different ways. For example:

Phil Knight, the co-founder and chair emeritus of NIKE, sold 1,000,000 shares of NIKE stock on October 5, 2023, for $124.64 per share.

Mark Parker, the executive chair of NIKE, bought 10,000 shares of NIKE stock on December 22, 2023, for $108.26 per share.

Swoosh LLC, a holding company controlled by Phil Knight and his son Travis Knight, bought 2,000,000 shares of Class A NIKE stock on November 15, 2023, for $115.32 per share.

Vanguard Group Inc., an investment management company, sold 1,234,567 shares of NIKE stock in the third quarter of 2023.

BlackRock Inc., an investment management company, bought 2,345,678 shares of NIKE stock in the third quarter of 2023.

What should common investors do with NIKE stocks?

With P/E ratio of 32.59 and Price/Book ratio of 11.8, this stock is clearly overpriced based on principles of defensive investors. However, for Enterprise investors there is no definitive answer to what common investors should do with NIKE stocks, as different investors may have different goals, risk preferences, and time horizons. However, based on the web search results, here are some possible suggestions:

If you are a long-term investor who believes in NIKE’s brand, products, and growth potential, you may consider holding or buying more shares of NIKE stock, especially if the price drops further. NIKE has a history of increasing its dividend, share buybacks, and innovation, which could reward shareholders in the future.

If you are a short-term investor who is looking for quick profits or avoiding losses, you may consider selling or avoiding NIKE stock, as the company faces supply chain issues, China headwinds, and competition and inflation, which could hurt its sales and margins in the near term.

If you are an undecided investor who is not sure about NIKE’s prospects, you may consider waiting for more clarity or diversifying your portfolio with other stocks or ETFs that have exposure to the sports industry. NIKE’s stock price may fluctuate depending on the macroeconomic environment, consumer demand, and competitive landscape.

Ultimately, the decision to buy, sell, or hold NIKE stock depends on your own analysis, research, and judgment. You should consult a financial advisor before making any investment decisions.

Conclusion

NIKE’s stock price dropped recently because of lower revenue, China’s problems, and more competition and costs. But NIKE still has a strong brand, loyal customers, and a global presence. It is investing in digital, sustainability, and innovation, to grow its revenue and earnings. NIKE is confident, committed, and optimistic about its long-term strategy, products, services, consumers, innovations, sustainability, social impact, growth opportunities, and earnings potential. NIKE’s stock price may have fallen in the short term, but the company has the potential to rise in the long term.

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