02:03 PM EDT, 09/25/2024 (MT Newswires) -- Nike's ( NKE ) fiscal first-quarter sales are expected to drop by a double-digit percentage amid "challenged" fundamentals, with a reduction in its full-year outlook likely, Morgan Stanley said in a note.

The athletic footwear and apparel maker is scheduled to report first-quarter results Tuesday. Morgan Stanley expects results to match Wall Street's views indicating earnings of around $0.50 a share and a 10% year-over-year decline in sales.

The brokerage said it continues to see ongoing negative EPS revision risk over the next 12 months heading into the print, and "even more so now given many worsening factors in the (last three months and) the potential for (management) to set a low bar for the incoming (chief executive)." Even if Nike's ( NKE ) results surpass expectations, they would still "likely reflect challenged fundamentals," Morgan Stanley wrote.

Last week, Nike ( NKE ) said John Donahoe will retire as CEO next month, with former executive Elliott Hill returning to lead the company.

Morgan Stanley said it's "less constructive" on Nike's ( NKE ) North America sales in the first quarter and more optimistic on Greater China. The firm projects North America sales to fall 13% from a year earlier versus the Street's view for a 12% decline. Morgan Stanley sees Greater China sales coming in "closer to" a flat print, compared with the Street's expectations for a 4% decline.

For the ongoing quarter, the brokerage expects Nike ( NKE ) to set an EPS outlook "around" the Street's call for $0.82, according to the note.

In June, the company said it expected a mid-single-digit percentage revenue decline in fiscal 2025. Nike's ( NKE ) outlook implies full-year EPS of roughly $3, "though some bears point to an outcome as low as $2.60 as possible," according to Morgan Stanley. The brokerage is looking for EPS of $2.77, with sales likely to fall 7%, versus the Street's views for $3.09 and a 5% decrease, respectively.

"While (Nike's ( NKE ) first-half) guidance assumptions may prove reasonable, we think the (second-half) improvement embedded in (the full-year) guidance is optimistic," Morgan Stanley said, adding that it expects an outlook reduction next week.

The brokerage raised its price target on the Nike ( NKE ) stock to $82 from $79 while maintaining its equal-weight rating.

The company's shares were up 0.5% in Wednesday afternoon trade, but are down 19% so far this year.

"We don't think the negative EPS revision cycle is behind (Nike ( NKE ), and) that any rate-of-change story is a ways off," Morgan Stanley wrote.

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