Nike (NYSE:NKE) shares fell more than 1% in premarket trading on Tuesday after Berenberg downgraded the sportswear company to Sell from Hold and reduced its price target to $27.50 from $49.
The brokerage cited changes in the competitive structure of the sportswear market, pressure on Nike’s lifestyle business and uncertainty around the pace of recovery in China and other areas.
Analysts led by Nick Anderson said Nike’s strategy of organising its sportswear operations around smaller focus areas “reads as an admission that market structure has shifted irreversibly against Nike.”
The analysts said lower barriers to entry have increased competition from brands operating across more fragmented market segments. This represents Berenberg’s assessment of Nike’s competitive position rather than company guidance.
Performance Categories Grow While Sportswear Sales Decline
Berenberg noted that Nike’s performance business continued to record growth during the first quarter, with sales increasing by a high-single-digit percentage.
Running, football, North American basketball, tennis and golf each recorded double-digit growth, according to the brokerage.
However, the broader sportswear category, which accounts for just under half of group sales, declined by a low-double-digit percentage. Sales at the Jordan brand fell by a mid-teens percentage.
Berenberg said these trends contributed to Nike’s guidance for a high-single-digit percentage decline in sales during fiscal 2027.
Berenberg Highlights China and Inventory Challenges
China remains another area of focus in Berenberg’s assessment. Nike has included the market within its “Win Now” actions since December 2024, but sales are expected to decline for at least another quarter.
Berenberg said a recovery in the market was not assured and argued that rebuilding Nike’s position with consumers could take several years.
The brokerage also identified inventory management in China and the sportswear category as challenges that could extend beyond fiscal 2027.
Berenberg said Nike was “conspicuously silent” on fiscal 2027 gross margin guidance, which the analysts viewed as presenting additional uncertainty. This assessment represents Berenberg’s interpretation rather than a statement from Nike.
Berenberg Cuts Nike Earnings Estimates
Berenberg reduced its Nike revenue estimates by 6.5% for fiscal 2027, 11% for fiscal 2028 and 13% for fiscal 2029.
The brokerage also lowered its earnings-per-share estimates by 38%, 46% and 34%, respectively, and now forecasts fiscal 2027 EPS of $1.08.
Berenberg also cited Nike’s Pace restructuring programme in its forecasts. The programme is expected to generate $2.5 billion of savings through fiscal 2031, with most of the benefits expected during fiscal 2029 and 2030, while involving $1 billion of pre-tax charges earlier in the programme.
The brokerage based its new $27.50 price target on an 18.1-times price-to-earnings multiple, equivalent to Adidas’s 20-year average, applied to its estimate of Nike’s fiscal 2029 earnings.
Berenberg said Nike’s valuation premium “looks unjustified.” The rating, price target and forecasts represent Berenberg’s investment analysis and are not company guidance.