Nike's (NKE) turnaround remains choppy, with improving margins and cost controls offset by a slower sales recovery amid continued weakness in China, sportswear and direct-to-consumer sales, BofA Securities said in a Wednesday note.

The company's management lowered its sales outlook to a low- to mid-single-digit decline while maintaining its earnings outlook. Stronger gross margins and cost controls are expected to offset weaker sales, the report said.

The investment firm said North American wholesale growth benefited from lower returns, discounts and cancellations rather than stronger underlying demand. It added that sportswear sell-through remained weak, while direct-to-consumer sales continued to lag.

Nike is prioritizing profitability in China through cleaner inventory, stronger full-price sales and a more premium brand positioning. Near-term revenue is expected to remain under pressure, according to the note.

BofA maintained its neutral rating on the stock and lowered its price target to $47 from $55.

Nike shares were up 2.1% in Wednesday trading.

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