Nike downgraded as turnaround path to take longer to execute

Investing.com -- Nike has been downgraded to Market Perform from Outperform by Telsey Advisory Group (TAG) on Friday following its second-quarter fiscal 2025 earnings call, the first led by new CEO Elliott Hill. 

The firm also reduced its 12-month price target to $80 from $93, citing longer-than-expected timelines and significant challenges in the company’s turnaround efforts.

We came away from Nike (NYSE:NKE)'s 2QF25 call—the first one led by CEO Elliott Hill—still seeing a path for a turnaround at Nike, but one that will take longer to execute, require greater investments in areas like brand marketing, and result in lower sales and profitability over the next 12 months," Telsey analysts wrote.

Nike is said to face hurdles, including cleaning up excess inventory, reestablishing strong wholesale partnerships, and reducing promotional activity in its direct-to-consumer channels to elevate its digital marketplace. 

TAG explains that inventory levels remain a significant concern, with inventory flat while sales declined 8%. 

To address this, they note the company plans higher promotions and discounts in the second half of fiscal 2025, which will negatively impact margins. 

Nike’s guidance is said to reflect these pressures, with third-quarter sales forecasted to decline in the low double digits year-over-year and gross margins expected to fall 300-350 basis points.

Elliott Hill outlined five key strategic priorities aimed at driving Nike’s recovery, including reinvigorating the company culture, refocusing on product innovation, increasing brand marketing investments, empowering teams for local market success, and reducing promotions to elevate the marketplace. 

While there has been early progress in products and marketing, "it is still early stages in elevating the marketplace," Telsey noted.

The near-term outlook remains challenging. "4QF25 is expected to have a more negative impact from inventory cleanup and strategic actions than 3QF25," the analysts added.