Nike’s (NYSE: NKE) post-earnings plunge reflects a company in transition. Despite beating Q3 earnings and revenue expectations, Nike spooked investors with a cautious outlook for the first half of fiscal 2025. Revenue is expected to decline due to a strategic shift towards new products and a subdued global economic climate.
This headwind comes amidst ongoing restructuring efforts aimed at cost reduction. While these efforts could benefit the company in the long run, the near-term impact is a drag on profitability. Net income for Q3 fell 5% year-over-year, reflecting these restructuring charges.
However, Nike remains a powerhouse in the athletic apparel industry. The company boasts a healthy balance sheet with strong cash flow generation. Additionally, its commitment to shareholder returns through dividends and share repurchases continues. The upcoming Summer Olympics presents a significant marketing opportunity, with planned product launches and campaigns designed to capitalize on the global spectacle.
Technical
The daily chart shows that Nike’s technical picture is bleak in the short term. The share price is poised to open over 6% lower on Friday, breaking decisively below the crucial 50 (blue line), 100 (orange line), and 200-day (red line) Simple Moving Averages (SMAs). This bearish breakdown suggests further downside potential.
The RSI (47.82) sits below 50, indicating bearish momentum. A potential “gap-and-go” lower could see the share price retest the 17-month low of $88.66, a complete retracement of the previous upswing. A sustained break below this level, accompanied by significant volume, could send the price tumbling towards the October 2022 low of $82.22.
However, there are glimmers of hope for the bulls. A short-term recovery above the 78.6% Fibonacci retracement level could find initial resistance at the 61.8% Fibonacci retracement level ($101.93). A decisive break above this resistance on strong volume could signal a turnaround, with the 50% and 23.6% Fibonacci retracement levels ($106.03 and $115.19) becoming potential upside targets.
Summary
Nike’s post-earnings slump presents a dilemma for investors. The company faces headwinds in the near term, potentially leading to further price declines. However, the long-term outlook remains promising, with a focus on innovation and a strong brand presence. Technically, a breach of critical support levels indicates further downside risk towards $82.22. Resistance lies at $101.93 and $106.03 for potential recovery, with caution warranted amid prevailing bearish sentiment.
Sources: TradingView, Trading Economics, Nike, Inc., MarketWatch, Investopedia, Investing.com.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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