Nike (NKE) shares stumbled after the company cut sales outlook and announced $2 billion in cost cuts, concerning investors. However, Bernstein analyst Aneesha Sherman maintains her bullish stance, arguing the macro drags don't signal "weakness in the Nike brand" itself but rather overall "tough market" conditions impacting companies across the sector.

In her view, Nike's move to reshape investments towards winning categories like women's and Jordan's aims to help the brand "stay relevant in people's minds" despite rocky conditions. While near-term uncertainty abounds, Sherman believes Nike's will manage the market storm and re-accelerate when headwinds subside.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

BRAD SMITH: Well, while investors are troubled by the impact of macro headwinds on Nike sales, analysts seem encouraged by the company's shift in attention to margins. Our next guest says that while the timing of the cuts announcement may be questionable, she likes the goal of funding high-growth initiatives. We have Aneesha Sherman, who is the Bernstein senior analyst here with us. Aneesha, great to speak with you as always here.

A lot of people are waking up this morning, especially after the judging that shares took immediately after the earnings release was dropped last night. Plus, the call took place and trying to figure out in an environment where we've heard all week buy on the dip, buy on the dip, buy on the dip, you've got a 10% dip here in Nike. Is it worth owning when you think about the long-term trajectory?

ANEESHA SHERMAN: I think, yes. So the issues that Nike highlighted in its H2 guidance cut, which was the big driver of the market reaction last night after market, they cut guidance from high single digits down to 1% growth, pretty big cut. But the biggest driver of that was macro and we've been hearing about macro weakness across the sector.

We heard it from Under Armor, from Lululemon, from Skechers, from Crocs, from a bunch of brands, you know, that reported over the last month. Nike hasn't reported since September, so they are, kind of, catching up to a trend that others in the sector have pointed out. I don't believe it signals any weakness in the Nike brand relative to competitors. It's just weakness in the market overall.

Seana, you talked about proportionality the weakness of digital. We're seeing all of those impacts on Nike's numbers as well as everybody else's. So I would not read this as a fundamental deceleration of Nike in particular, it's just a tough market. And if you're looking at it out more than six months out, I think this is a good opportunity to get into the stock.

SEANA SMITH: And Aneesha, as you pointed out in your note here this morning, the margin story is one of the bright spots within this report just in terms of some of those positive trends that we're seeing there. Management, you say, investing in growth. So when you take a look at where Nike could be a year from now, two years from now, what's going to drive that stock here to the upside and drive those numbers, revenue to the upside?

ANEESHA SHERMAN: It's actually both revenue and margins. I mean, Nike has been a revenue story the last few years and margins have disappointed. They now have a lot of margin tailwinds coming back both, kind of, the transitory costs of COVID that are now reversing like freight, as well as some structural margin improvement in how they run the business.

But at the same time, they are investing in top line growth. They keep telling us Nike is a growth company. We haven't seen that this year, but I'm optimistic about seeing them invest into women's, into Jordan, into a big innovation cycle, into gaining share, and running. These changes will take time. But I think over a medium term time horizon, I think we should see them re-accelerate growth and get back into share gain mode.

BRAD SMITH: We were just talking about what the inventory mix shift might look like for Nike. What is perhaps one of the most profound changes that you expect them to ultimately initiate or the lever that you expect them to pull?

ANEESHA SHERMAN: One of the interesting things they commented on as part of this cost cutting or, kind of, sharpening of the market performance program they're running is they're going to make bigger bets on the stuff that's working. So women's and Jordan were two big growth opportunities that they highlighted. And the flip side of that is they're going to under-invest in maybe the more basic stuff, the stuff that doesn't move as fast, or doesn't drive as much brand heat. So we are going to see more of a mixed shift towards bigger, higher ticket, more brand regenerating product, in particular franchises that are successful, which I think is all very good for the brand's ability to gain share, and stay relevant in people's minds.