During the September 30 episode of Mad Money, a caller asked about bottom-fishing opportunities with NIKE, Inc. (NYSE:NKE), and Jim Cramer replied:
You know, I tried to bottom fish in Nike about I guess it was about 10 points ago for the Trust.. I lost money for the Trust, and it was very painful. I don’t want to go back… Good guys, but you know, once burned, twice shy. How about that?
You can also read how the company compares to another similar stock.
North American Growth And Improving Gross Margins
NIKE, Inc. continues to face a difficult turnaround, although parts of the business are showing improvement. In its fiscal 2027 first quarter, revenue declined 4% year-over-year to $11.2 billion, while gross margin expanded 60 basis points to 42.8%. North America revenue increased 2% on a currency-neutral basis, with wholesale revenue rising 9% in the region. The company also reduced selling and administrative expenses by 3% to $3.9 billion.
Management has launched the Pace operating model transformation, which includes changes to its geographic structure, supply chain and organization. NIKE, Inc. expects the program to generate approximately $2.5 billion in cumulative savings through fiscal 2031, although it also expects approximately $1 billion in pre-tax charges related to the program. The valuation has also fallen substantially with the share price. As of October 2, the company traded at approximately 16.2x trailing earnings and 24.4x forward earnings. Here is how NIKE, Inc. compares with On Holding (NYSE:ONON) and what Jim Cramer thinks.
China Weakness And Extended Turnaround Risks
NIKE, Inc.’s latest results showed continued weakness in several important markets. Greater China revenue declined 22% on a reported basis and 26% on a currency-neutral basis, while EMEA revenue fell 5% on a currency-neutral basis. We also recently covered the effect of the Middle-East crisis on the company, as explained by Baird analyst Jonathan Komp. Nike Direct revenue declined 9% on a currency-neutral basis, including a 13% decline in digital sales. Converse revenue dropped 28%.
Management expects fiscal 2027 revenue to decline by a high-single-digit percentage and adjusted earnings per share to range between $1.15 and $1.35, excluding approximately $0.15 of restructuring expenses. The company has also warned that the Pace program will involve additional costs and execution risks.
At approximately 24.4x forward earnings, the stock is not trading at a low multiple relative to the earnings outlook. The valuation therefore remains dependent on the eventual recovery in revenue and earnings rather than simply the decline in the share price.
Where Hedge Funds Stand on the Stock
According to Insider Monkey’s database, 56 hedge funds held positions in NIKE, Inc. at the close of the second quarter, down from 71 funds in the prior quarter. With 14.4 million shares Harris Associates was the most prominent shareholder among the 1000+ hedge funds tracked by Insider Monkey. Meanwhile, short interest stood at 8.98% of the public float.
Cramer’s comments come as NIKE, Inc. works through declining sales in Greater China, weaker direct sales and a broader restructuring program. The company has identified cost savings and product improvements as part of its turnaround, but its current fiscal-year earnings outlook remains below what investors had previously expected.
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