Nike shares tumbled 8% on Friday after the Air Jordan maker warned of lower sales in its first half as it replaces older styles with trendier sneakers, while Lululemon Athletica sank 17% as demand waned for its premium athleisure.
While Lululemon's gloomy forecast spotlights the challenges for retailers as customers reduce discretionary spending due to sticky inflation, Nike's projection signals its efforts to battle newer brands for market share.
"One of the things that both Lululemon and Nike have enjoyed over the last few years is premium prices on their premium products and that seems to be in doubt at this point in time," said Brian Mulberry, client portfolio manager at Zacks Investment Management, which has a stake in Nike.
Nike plans to trim supplies of classic shoes such as its Air Force 1 and Pegasus, financial chief Matt Friend said on Thursday, to focus on reviving its running shoe category, as well as upcoming launches including its Air Max Dn.
Meanwhile, Lululemon reported a 9% growth in North American sales for the fourth quarter, a far cry from the 29% jump a year earlier and a 12% gain in the prior quarter.
"This level of deceleration (in sales growth) in the US does raise some concerns on market share opportunity," Piper Sandler analyst Abbie Zvejnieks said in a note. The brokerage trimmed its PT to $525 from $560.
Lululemon was set for its worst day in more than four years, while Nike shares touched a six-month low on Friday. Peer Under Armour fell 3%.
At least 12 brokerages cut their PTs on Nike following the results, pulling down the median target to $116 from $126 in December. Nike's shares were last trading at $93.50.
"Until the market sees evidence that new products can grow and scale sufficiently, we think this will remain a hotly-debated stock that will remain stuck in the mud," said Wedbush analyst Tom Nikic.
Nike's forward price-to-earnings multiple, a common benchmark for valuing stocks, is 24.84, compared to 52.08 and 15.31 for Adidas and Puma, respectively.
At least 17 brokerages cut their PTs on Lululemon.
