While there is growing optimism on Wall Street regarding Nike's 2024 prospects, analysts remain more cautious about the retailer's upcoming earnings report.

In recent months, investor sentiment towards Nike stock has improved, fueled by expectations of higher margins as the company benefits from improved freight costs and reduced discounting.

Citi analyst Paul Lejuez recently upgraded Nike shares to Buy from Neutral, citing the company's attractive margin recovery potential in an uncertain macroeconomic environment. This positive sentiment was echoed by Wells Fargo analyst Ike Boruchow, who added Nike to his top picks list, replacing competitor Lululemon Athletica.

Despite these positive views, Nike must first wrap up its fiscal second-quarter earnings for 2023, which are set to be reported after the market closes on Thursday. Some analysts, however, anticipate potential challenges along the way.

Wedbush analyst Tom Nikic reminded clients that Nike still has room for improvement and is not yet operating at full capacity.

Nike Faces Challenges amid High Inventory Levels

According to analysts' predictions, Nike's revenue is expected to see only a slight increase of less than 1% year-over-year, reaching $13.4 billion in its second quarter. This is largely attributed to the company's high inventory levels and the slowdown in wholesale demand for footwear in North America and Europe.

In addition, macroeconomic challenges are anticipated to hinder Nike's management team from raising guidance. As a result, it is likely that the stock may regress from the gains it has achieved in recent weeks.

However, it is important to note that earnings could serve as a bright spot in the report. Nike's second quarter earnings are projected to be 84 cents a share, as the company begins to benefit from lower freight costs. These lower costs have the potential to positively impact Nike's performance throughout 2024.

While top-line challenges still persist, analysts from Citi are cautiously optimistic about Nike's ability to protect its earnings per share (EPS) in the future despite the uncertain macroeconomic landscape.

In conclusion, Nike faces various obstacles due to high inventory levels and slowing wholesale demand. While revenue growth may be limited in the second quarter, earnings are expected to be a potential highlight for the company.

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