03:36 PM EST, 12/13/2024 (MT Newswires) -- Nike ( NKE ) is expected to deliver a fiscal second-quarter earnings beat, but guide the third quarter below Wall Street's expectations amid potential downside to sales and gross margin, Morgan Stanley said in a note emailed Friday.

The athletic footwear and apparel maker is scheduled to release second-quarter results Thursday. Morgan Stanley projects earnings at $0.67 a share, which it said would top the Street's $0.65 view, mainly due to selling, general, and administrative expense discipline.

The brokerage sees sales falling 10% year over year versus the Street's call for a 9% decline and Nike's ( NKE ) own outlook range indicating an 8% to 10% drop. Almost all company data points during the period were "incrementally negative," leading to Morgan Stanley's below-consensus sales view, the brokerage said.

The firm expects Nike ( NKE ) to guide third-quarter EPS between $0.55 and $0.60, and sales dropping by high-single-digit to low-double-digit percentage, lagging the Street's projections for $0.65 and a 7% decline, respectively. The brokerage expects "inventory digestion" and sales and promotion pressures to linger in the near term.

Morgan Stanley reduced its price target on the Nike ( NKE ) stock to $80 from $82 while maintaining its equal-weight rating. The company's shares were down 0.8% in Friday late-afternoon trade. The stock has shed 29% in value so far this year.

In September, Nike ( NKE ) said that Elliott Hill would become its chief executive. In October, the company withdrew its full-year guidance given the CEO transition.

Nike ( NKE ) is unlikely to reinstate the outlook amid factors such as Hill's short tenure so far and a lack of clarity around the company's strategy, Morgan Stanley said. The brokerage added that it's doubtful of Nike ( NKE ) and the Street's assumptions that fundamentals could "meaningfully improve" in the second half of the year.

Morgan Stanley cut its full-year EPS outlook to $2.45 from $2.60 and now sees sales decreasing 9% versus its prior projection calling for an 8% decline.

"Altogether, while (Nike's ( NKE )) go-forward strategy is outstanding, (and) there's little evidence of turnaround in the fundamentals, but it also enjoys a new-CEO halo, we think the stock proves mostly range-bound," the brokerage wrote.

Price: 77.32, Change: -0.64, Percent Change: -0.83