Is Nike’s $50 Billion Sales Target Out the Window? What You Should Know Before Investor Day

Supreme x Nike Air Force 2
Supreme x Nike Air Force 2 Low "Orange Blaze"

It’s been a mixed few months for athletic-industry leader Nike Inc. as the company battles slowing demand and rising competition. Now, with its investor day less than 48 hours away, shareholders and market watchers may be getting close to receiving much-anticipated feedback on the company’s strategy. (Nike will host its investor day on Wednesday at its Beavorton, Ore., campus.)

Here, four major things analysts are saying about Nike right now.

Is $50 Billion Out the Window?

It’s been two years since Nike set the industry ablaze with its blockbuster $50 billion-dollar revenue target for 2020. Now some analysts believe that bullish forecast is in jeopardy.

“Expect many of the FY20 financial targets provided at the 2015 investor day to be reduced and/or pushed out … Nike management will present a new five-year plan and spell out a strategy to get there,” Susquehanna Financial Group LLLP analyst Sam Poser wrote on Oct. 18, noting that Nike’s revenue growth target is based on a compound annual growth rate (CAGR) of 10 percent. Meanwhile, to date, Poser said the firm has achieved CAGR of 6 percent.

In the same vein, Goldman Sachs analyst Lindsay Drucker Mann described the upcoming investor day as “an opportunity for management to lower its multiyear growth targets, which look stretched in the face of industry headwinds.”

Canaccord Genuity Inc. analyst Camilo Lyon said his conversations with investors also suggest expectations are for a lowering of the $50 billion revenue target.

“We see three possible outcomes: no change to the existing 2020 targets (which would hurt Nike’s credibility …), a reduction of the 2020 revenue target closer to $40 billion in sales, implying mid-single-digit growth going forward, or keep the $50 billion target but extend the timeline to 2022, implying 9 percent growth in fiscal year 2019-2022.”

Lyon said he’s placing his bet on the latter outcome.

Foot Locker & Finish Line Could Be Impacted

“We would not be surprised to hear Nike shift its midtier wholesale distribution away from department stores toward online retailers like Amazon and Zalando — where traffic is robust,” Lyon wrote. “Similarly yet potentially more alarming, we expect to hear more of a focus on driving Nike.com sales by increasing the inventory positions of hot releases, a negative for Foot Locker and Finish Line.”

U.S. Inventories Likely to Remain a Downside

Drucker Mann — who notably downgraded Nike stock from “buy” to “neutral” last week — said Nike’s inventory overhang in the U.S. will hamper its ability to “reset” the market, further hindering any bullish news on Wednesday.

“While well-understood by investors at this point, our downgrade today reflects our view that the drivers of domestic pressure will take some time to work through, exacerbated by persistent excess inventory sitting at Nike’s brick-and-mortar retail partners and the high visibility this markdown product gets as it is funneled online via Amazon.com and other platforms,” Drucker Mann wrote, noting that she expects that Nike’s Investor Day is “unlikely … to be a positive event.”

Balancing Mass Appeal With Individualized Marketing

“The problem is that Nike has created very large, profitable platforms over the years, some of which may be becoming antiquated as consumers have more and more information and choices at their disposal,” Poser explained. “The question that we believe management must address at next week’s investor meeting is: How can Nike effectively scale its platforms and franchises while at the same time satisfying the ever-expanding individual wants and needs of its consumers and potential consumers?”

More specifically, Poser believes Nike should focus the innovation aspect of its Triple Double strategy — a component of the firm’s Consumer Direct Offense plan, unveiled in June — on more innovative storytelling and not just innovative product.