Nike (NKE) shares are slightly down in early trading as the stock received a downgrade from Jefferies from "buy" to "hold," as well as a price target of $100 a share.
Yahoo Finance Live discusses the reasons for the downgrade, including macro headwinds in China and reduced consumer spending in the United States. For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
SEANA SMITH: All right, let's take a look at another stock that we will be keeping a close eye on this week, and that is Nike. But today, Jefferies downgrading the stock from a buy to a hold and setting their price target to $100 a share-- still about $10 higher from where we are today. Now, analysts are saying that there is risk ahead because of the macro headwinds coming out of China and also reduced US consumer spending. Certainly a lot to unpack here ahead of the company's earnings results later this week.
But Brad, when it comes to some of the issues here for Nike, we know China, obviously the macro headwinds there, that could prove to be a real challenge for Nike given the reliance and given the importance of China to their business. Also the consumer survey that they conducted saying that they expect a cut back on spending here-- 46% of the people that they surveyed planning to spend less on footwear, which is a little bit worrisome for Nike and for all of its competitors.
BRAD SMITH: Look, I am one of the consumers out there that always looks across footwear, tries to see, OK, what am I missing out on? What is the next kind of item that I can get my feet comfy and cozy in? And quite frankly, I put a lot of things in my cart but I'm not necessarily purchasing them at the same clip that I was before, and I imagine a lot of consumers out there who are monitoring their own discretionary spending might be doing the same.
What does that mean? That means companies like Nike, like Adidas, like Lululemon, like Under Armor, they have to sense what that environment is and you might see more of a discounting or heavy promotional period. That's something that was called out within this note, and that comes in unit liquidation potentially here.
And in their view-- at least the view that we got from JP Morgan here today, in their views, their initial first half plan as management flagged second quarter as the toughest sell in lap and largest unit liquidation lap in their follow up access three months ago, if you look at that further here, you could be looking at a very promotional holiday period where Nike and some of the other athletic apparel and footwear brands might be forced to even look across the not just what's selling at the average or the full sale price because Nike wanted to get this back to about 65% of their inventory selling at full price.
That's going to be tough with the consumer that's pushing back and looking for more promotions or discounts here. So you've got to factor that in as well as what you were mentioning on the China side. So really rounding out that global picture right now.
SEANA SMITH: Yeah, increased promotional activity is certainly something that we will be keeping a close eye on when it comes to Nike-- really any retailer as we head into that very important holiday season. I also want to point out, though, a note that we got from JP Morgan on Nike ahead of those results today, and they're a bit more optimistic when it comes to what they're expecting to see from Nike. They reiterated their overweight rating on the stock, saying that they expect Nike more or less to come in line with expectations.
They do see some headwinds when it comes to China. They have lowered their Q1 China estimate to a 13% year-over-year comp compared to what they had initially anticipated previously. But overall, they reiterated that overweight rating on the stock, the fact that they do see potential catalysts with their price target at $136 a share. So we have some varying opinions out there on the street.
BRAD SMITH: Yeah.
SEANA SMITH: But we'll see.