Nike Earnings: Near-Term Outlook Dims but Margin Improvement Still Likely; Shares Undervalued

Wide-moat Nike’s earnings in its (November-ended) fiscal 2024 second quarter surpassed our forecast, but this result was overshadowed by a disappointing second-half sales outlook, especially in greater China and Europe, the Middle East, and Africa, or EMEA. Specifically, the firm guided to 1% sales growth for the full fiscal year, below our 4% estimate. Moreover, Nike announced a new restructuring plan that will bring $400 million-$450 million in one-time charges in the second half. This plan, which will include layoffs, increased automation, and product eliminations, is expected to generate as much as $2 billion in cost savings over the next three years to fund efficiency, speed, and product development efforts.