Key Takeaways
- Bank of America downgraded Nike from Neutral to Underperform on Friday, sending shares down over 2% in premarket activity.
- The firm slashed its price target from $47 to $30, suggesting approximately 17% downside from the previous closing price.
- BofA reduced fiscal 2027 and 2028 earnings projections by 11% and 12% respectively, forecasting negative revenue growth extending through fiscal 2027.
- The firm warns that North American wholesale momentum is deteriorating as retail sell-through fails to keep pace with inventory shipments, particularly for legacy product lines.
- China operations continue struggling with a 17% sales decline last quarter, and additional headwinds are anticipated as Nike restructures its online distribution partnerships.
Nike experienced a sharp decline of more than 2% in Friday’s premarket session following Bank of America’s decision to downgrade the athletic apparel giant to Underperform from its previous Neutral stance.
BofA analyst Lorraine Hutchinson delivered the sobering assessment by lowering the firm’s price objective to $30 from $47. This revised target represents roughly 17% downside potential from where Nike closed in its most recent trading session.
The financial institution has pushed back its timeline for Nike’s operational recovery, now projecting meaningful improvement won’t materialize until fiscal 2028. This marks a significant shift from BofA’s earlier projections anticipating a more immediate rebound.
The bank lowered its fiscal 2027 earnings per share projection by 11% and trimmed its fiscal 2028 forecast by 12%. Their updated fiscal 2027 estimate now trails Visible Alpha consensus expectations by 14%.
North American Wholesale Momentum Fading
The North American wholesale channel had emerged as Nike‘s strongest performer, posting 14% growth during fiscal 2026 even as overall revenue remained stagnant. However, BofA believes this positive trajectory is nearing its end.
The firm identified a troubling disconnect: retail sell-through rates are falling behind sell-in volumes, indicating retailers are accumulating inventory faster than consumers are purchasing it. Traditional product categories are experiencing weakness, while several recent product introductions have failed to capture consumer interest.
This dynamic is likely to make wholesale partners increasingly conservative with future orders. BofA anticipates North American wholesale revenue will turn negative starting in the second quarter and remain in decline throughout the remainder of fiscal 2027.
Greater China Challenges Persist
Nike’s Greater China segment contracted 17% during the latest reporting period. BofA’s Luxury Goods research team conducted on-the-ground research in China and returned with concerning observations.
Their findings revealed subdued athletic footwear demand and new product offerings failing to connect with Chinese consumers. The running category, previously a growth driver, is showing signs of deceleration, while excess inventory is accumulating as demand weakens.
Additionally, Nike is reducing its presence with third-party online distribution partners in China. BofA predicts this strategic shift will intensify promotional activity through the second quarter before enabling Nike to present a more unified brand experience in the digital marketplace.
The shares have experienced a challenging year independent of Friday’s downgrade. Nike stock has plummeted 44% year-to-date, while the S&P 500 has advanced 12% over the same timeframe.
According to BofA, this substantial decline already incorporates a 40% reduction in fiscal 2027 earnings estimates during this period. The analysts expressed skepticism that the stock can maintain a valuation premium if earnings projections continue facing downward revisions.
One positive development involves tariff exposure. Current tariff rates on Nike merchandise range from 10% to 12.5%, representing a significant improvement from the approximately 20% rates imposed a year earlier.
BofA anticipates Nike’s recently appointed CFO will prioritize aggressive cost reduction initiatives. The firm expects operational overhead to be a primary target for efficiency improvements.
Dividend sustainability has also emerged as a concern highlighted in the research note. BofA’s fiscal 2027 projections indicate a payout ratio reaching 107%, meaning dividend payments would surpass net earnings.
This factor contributed to BofA’s decision to reduce its income rating on the stock. With revenue under pressure, the bank emphasized that Nike’s profitability trajectory will depend significantly on its ability to expand gross margins and execute disciplined expense management.
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