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Nike stock downgraded on 44% rise in inventory

Yahoo Finance's Josh Schafer discusses Wall Street analyst calls on Nike after the athletic apparel giant reported some red flags in its earnings results.

Video Transcript

AKIKO FUJITA: Well, shares of Nike just getting punished this morning. That stock is down more than 10 and 1/2%, as the athleticwear maker reports its earnings. Those results casting a pall over the stock, including a miss on China sales estimates, ballooning inventory as the economy continues to slow, and a strong dollar weighing on overall sales. Yahoo Finance's Josh Schafer here with me to break it all down. And Josh, we've already seen a number of analysts come out and downgrade the stock.

JOSH SCHAFER: Yeah, Akiko, so I was looking on Bloomberg this morning. I counted 19 analysts have cut their price target in the last 24 hours on Nike. Now, interesting to note, though, most of those analysts have not moved their rating. So there are plenty of buy ratings, plenty of outperform ratings, and we'll get to that in a second on how people kind of feel about Nike.

But I did want to highlight a couple of things that we've seen. We saw Bank of America's Lorraine Hutchinson kind of highlight near-term promotional actions are going to drag on Nike. Macro uncertainty is going to drag on Nike. So there's a lot of talk about what's going to happen in the next quarter or two on Nike because they have all this inventory. They're going to have to put it on sale, right? And so a lot of analysts are sort of warning of that.

But in general, I think that in the long-term, people are feeling pretty bullish on the name. You have Goldman Sachs's Kate McShane, who did cut her price target, pointing out current valuations look attractive. Nike's hit a 52-week low today at $85. And I think people like that part. Ongoing success in driving innovation, particularly in footwear. Direct-to-consumer sales were up 8% year over year. That's a big space where Nike's trying to grow.

And then finally, a final analyst that we had on yesterday on our show in the 3:00 to 5:00, David Schwartz at Morningstar, kind of summed it up well, simply saying, it's Nike. People love Nike products. And if you want a long-term positive take on it, that's what analysts are looking at. You're not buying the stock for a three-month hold here. You're buying it for a 5, 10-year hold.

AKIKO FUJITA: So the long-term story remains intact, but this is a company that's very much exposed to these macro headwinds we've been talking about. Because of their international exposure, FX a big hit. Not necessarily unique to Nike, but how do you break down the numbers in terms of how big that hit was?

JOSH SCHAFER: So it's interesting. We talk a lot about the strong dollar. And Jared was actually just talking about it last block, right? But if you look at Nike's earnings, there's a great example here of what that does to currency exchanges. So if you look at the European revenue that Nike had this year, it came in. You can see there, there was 17% year over year growth. But that excludes currency changes. When you go into the currency exchanges, Nike's European revenue actually only grew 1%.

Similar thing happened in Asia-Pacific and Latin America. They originally grew 12%, but then you get into the currency exchanges, and that was flat. So you can see there how the strong dollar is impacting Nike. And we should know, it's not like Nike is the only multinational company that we talk about on this program. We talk about plenty.

Think about an Apple and when we start to see those numbers. How is that going to impact them? Because Nike is a strong company in the same way that an Apple or an Amazon, those brands are strong companies. But this is kind of an unavoidable headwind for even the strongest companies like Nike.

AKIKO FUJITA: Yeah, we heard a lot of those warnings in the previous quarter. Expect that to get even stronger in this current quarter. Josh, thanks so much for breaking that down for us.