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Nike (NKE) is expected to report results on its fiscal third quarter on Thursday, March 21, with a conference call scheduled for 5:00 pm EDT. What to watch for:

GUIDANCE: In December, Nike forecasted Q3 revenue to be slightly negative, with a gross margin expansion of 160-180 basis points. The company lowered its fiscal 2024 revenue forecast to up 1% from up mid-single digits, with gross margin expansion of 140-160 basis points compared to the previous forecast of 130-140 basis points. Analysts currently expect Nike to report Q3 revenue of $12.29B and FY24 revenue of $51.78B. Shares of Nike fell about 10% in the aftermath of the Q2 results and are down about 6% year-to-date.

In conjunction with its earnings report, Nike said it was identifying opportunities to deliver up to $2B in cumulative cost savings over the next three years. Areas of potential savings include simplifying its product assortment, increasing automation and use of technology, streamlining its organization, and leveraging its scale to drive greater efficiency. The company expects to take pre-tax restructuring charges of $400M-$450M that will largely be recognized in Q3, primarily associated with employee severance costs. In February, The Wall Street Journal said Nike would reduce its workforce by 2%, or over 1,600 people. In a memo, Nike said "We are not currently performing at our best."

EXPECTED GUIDANCE CUT: Williams Trading downgraded Nike to Sell from Hold with a price target of $85, down from $92 ahead of the earnings report. "Nike's strength continues to diminish," the analyst told investors in a research note. The firm believes "consultants, rather than Nike experts are leading strategy decisions, senior leaders are too dogmatic, and do not welcome all opinions." Williams thinks Nike will report a slight miss in fiscal Q3 and its fiscal 2024 guidance will be cut once again. The firm believes the company does not deserve its historic multiple "as many of the franchises, whose successes contributed to that multiple, are losing their luster."

BofA forecasts Q3 EPS of 50c, which includes a 23c cost from the previously discussed restructuring charges, relative to consensus at 74c, which BofA thinks mostly excludes the charges. The firm models total sales in Q3 to be down 1.6%, in line with the "slightly negative" guidance, and is trimming its FY25 EPS view by 4% to $4.12 to reflect lower sales growth in China. However, BofA notes it thinks FY24 guidance will be reaffirmed.

LOW BAR: Morgan Stanley sees upside to Q3 and fiscal year EPS on "a low bar" set last quarter, but views equity appreciation as contingent upon increased line-of-sight to Nike's long-term growth and profitability targets, which isn't likely until Q4 of the first half of FY25 "at the soonest," the analyst tells investors in an earnings preview note. The firm sees "seemingly overly-bearish sentiment" against many potential positive catalysts in the next twelve months, but thinks the Q3 report "likely does little to change the narrative on the stock," the analyst added. Oppenheimer said that while longer-term prospects for Nike and the company's equity remain compelling, it is increasingly concerned that over the next several quarters, sales trends at the enterprise are likely to remain sluggish and below algorithm. This is due to a combination of "spotty" consumer demand, lulls in product innovation, and modest competitive incursions in select categories,

COOLING SENTIMENT: Telsey Advisory said sentiment on Nike has "cooled significantly" following the fiscal 2024 guidance reduction in late December, commentary from other athletic brands like Adidas, Hoka and On about their share gains, and negative press regarding Nike's product innovation and the quality of uniforms supplied by Nike to MLB and FC Barcelona. On the flip side, Nike just recently launched a new silhouette Air Max Dn, which looks promising, and Telsey has seen increased shelf space at retail for signature basketball products like Book 1 and Tatum 2, the analyst said. The firm will look for evidence that the current low level of sales growth is temporary rather than the result of diminishing brand heat globally or structural issues in the business that will take longer to fix.

Truist believes Nike is facing some share loss, especially to rapidly growing competitors like HOKA and On in the U.S. and abroad in footwear. Nike shares will remain rangebound until there is a clearer line of sight into a stronger and more consistent top line growth, the firm added.

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