Sneaker giant Nike (NKE) is set to release its fiscal Q3 2024 earnings after the closing bell tomorrow. With a YTD loss of almost 8%, NKE is among the worst-performing Dow Jones Industrial Average ($DOWI) components this year. Things were no different last year, as Nike stock fell 7.2% in 2023, even as the broader markets delivered strong double-digit returns.

Nike stock hit an all-time closing high of over $173 in November 2021, and is currently trading around 42% below those highs, and has closed in the red every year since then - even as the S&P 500 Index ($SPX) soared to new record highs.

After the company released its fiscal Q2 earnings last December, Nike stock tumbled. Will things be any different this time around? Here’s what to expect when Nike releases its quarterly report later this week, and whether the stock is a buy ahead of its turn in the earnings confessional.

Nike Q3 Earnings Preview

Analysts expect Nike’s fiscal Q3 revenues to fall 0.8% YoY to $12.3 billion. During the previous earnings call, Nike had warned that its fiscal Q3 revenues would be slightly lower YoY. The company faces unfavorable comps in the quarter, as revenues rose by double digits in the corresponding quarter last year.

During the Q2 earnings call, Nike also lowered its full-year revenue growth forecast to a mere 1%, down from the previous guidance of mid-single-digit revenue growth. 

Commenting on the lower guidance, Nike’s CFO Matt Friend said, “This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA adjusted digital growth plans based on recent digital traffic softness and higher marketplace promotions, life cycle management of key product franchises, and a stronger U.S. dollar that has negatively impacted second-half reported revenue versus 90 days ago.”

Analysts expect Nike’s earnings per share to fall 12.7% in the fiscal third quarter, but predict almost a 32% YoY rise in earnings for the current quarter.

What to Watch When Nike Reports Its Earnings

When Nike reports its earnings, I will be watching for the following, apart from the usual earnings metrics:

• Guidance: During the previous earnings call, Nike spooked markets by lowering its guidance. I will watch for comments on the guidance for the current quarter to gauge whether the company still expects low single-digit revenue growth in the final quarter of the fiscal year.
• Comments on China: Markets have been particularly apprehensive about companies with significant revenue exposure to China. During their previous earnings call, among other factors, Nike blamed the worse-than-expected slowdown in China for lowering its full-year guidance. Apple (AAPL) - which, like Nike, gets a big chunk of its revenues from China - is also battling a slowdown in that region. No wonder, then, that AAPL is the worst-performing FAANG stock of the year, just as it was in 2023.
• Jordan Brand: Williams Trading analyst Sam Poser, who has been covering Nike stock for around 17 years, believes that whereas historically Nike had a “pull” model, the company has now transitioned to a “push” model, by pushing its merchandise to stores like Foot Locker (FL). He also expressed concern that the launch of Jordan 11 in December wasn’t as strong as expected, citing comments from Hibbett (HIBB).
• Product innovation: There is a perception that Nike is lagging in product innovation, which has historically been its strength. During the previous earnings call, Nike tried to address the issue by saying, “The second half of fiscal '24 represents the start of a multi-year product innovation cycle that will introduce new franchises, concepts, and platforms, elevating our full portfolio.” I will be looking for more updates on these innovations during the upcoming earnings call.

Nike Stock Forecast Ahead of Earnings

Wall Street analysts are mixed on Nike heading into earnings. While Poser downgraded the stock from a “hold” to “sell,” Guggenheim analyst Robert Drbul termed the stock his “best idea” for the year.

According to Drbul, Nike's “management is laying the groundwork for many launches of product to deliver an acceleration in top line growth in the second half of 2024 and into 2025.”

Overall, Nike has a rating of “Moderate Buy” from analysts. Of the 30 analysts covering the stock, 16 rate it as a “Strong Buy,” while 3 say it's a “Moderate Buy.” Ten analysts rate the stock as a “Hold,” while 1 has given it a “Strong Sell” rating. Nike’s mean target price of $122.52 is 22.5% higher than yesterday’s closing price.

Should You Buy NKE Stock Ahead of Earnings?

Markets have fairly somber expectations from Nike this quarter, which - coupled with the stock's recent underperformance - sets the stage for a post-earnings spike, even if the company can come up with a decent set of numbers.

However, given the economic situation in China, I wouldn’t bet on major positive surprises in the report. From a longer-term perspective, Nike’s valuations have corrected, and the stock now trades at a next 12-month price-to-earnings multiple of 25.9x, which is lower than its historical averages. However, the company needs to regain the market's faith in its growth story before it starts commanding a premium valuation again.

All of that said, I believe that while Nike faces short-term headwinds, the stock should eventually recover in the medium to long term, as strategic actions like product innovation and cost cuts start to manifest in its financial performance.