An employee works next to shoes displayed inside the flagship store of sporting goods giant Nike in Shanghai on March 16, 2017.
Johannes Eisel | AFP | Getty Images
A glimmer of hope for Nike in China could be good news for other retailers with big business in the region, as companies grapple with the pandemic recovery and prolonged global turmoil.
Nike shares rose more than 5% on Tuesday morning, after the athletic footwear giant said its business in China was improving despite the recent backlash against Western brands and a lack of merchandise in the market. Nike has shown, at least for now, that it handles broader macroeconomic challenges, including the ongoing supply chain backlog, better than many expected. Prior to Monday’s report, Nike shares had fallen 22% this year.
Analysts say Nike’s results bode well for other sportswear retailers such as Adidas and Puma who have similar global exposure. To be sure, Nike has yet to provide a forecast for the next fiscal year, which begins in June, due to a number of volatile factors that could change between now and when Nike announces fourth-quarter financial results. That still leaves room for trends to turn the other way.
For the three-month period ending in February. On November 28, Nike said sales in China fell 8% year on year, better than the 12% decline analysts had expected. It was also a marked improvement from the 24% decline that Nike booked in the previous quarter. China in particular has been Nike’s most profitable market.
China has been the biggest increase in Nike shares, but the region is now “moving in the right direction,” Wedbush analyst Tom Nikic said in a note to clients.
‘With the great momentum of the brand and in the long run [earnings] A force driven by direct-to-consumer initiative, we believe Nike continues to be one of the highest quality and most visible growth stories in our space.”
During a post-earnings call with analysts, Nike’s management team outlined the steps the company has taken to win over the service to overseas shoppers. For example, Nike has partnered with two Chinese retail distributors, Top Sports and Pou Sheng, to expand its reach in the region. She also cited a recent branding campaign that was associated with the Beijing Olympics.
“We are encouraged by this momentum and what it says in terms of our optimism that we will be able to return to the long-term growth algorithm,” said Chief Financial Officer Matthew Friend. “In the short term, we are practically watching the Covid related shutdowns in the market and the impact on the fourth quarter of those closings is not clear at the moment… but it looks different.”
In the fourth quarter of the fiscal year, Friend said Nike expects to see sequential improvement in China as it continues to monitor the recent spike in Covid cases and renewed lockdowns.
Evercore ISI analyst Omar Saad described the quarter as a “turning point” for Nike in China. “We believe the strong performance alleviates key concerns that Covid has significantly derailed Chinese demand,” he said in a note to clients. “We also believe this puts an end to concerns that any shift in demand towards domestic brands would significantly hamper Nike’s growth.”
For the current fiscal year, Nike reiterated its forecast that sales will grow at an average single-digit rate compared to the previous 12-month period. Analysts expected revenue to rise 5.3%.
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