Nike recovers in China, potential good omen for retailers

An employee works next to shoes on display inside the flagship store of sportswear giant Nike in Shanghai on March 16, 2017.

Johannes Eisele | AFP | beautiful pictures

The glimmer of hope for Nike in China could be good news for other retailers with large operations in the region, as companies face a protracted recovery from the pandemic and global unrest.

Nike shares jumped more than 5% Tuesday morning, after The sneakers giant says its China business is improving despite recent backlash against Western brands and shortages in the market. Nike shows that, at least for now, it is handling broader macroeconomic challenges, including ongoing supply chain backlogs, better than many had anticipated. Prior to Monday’s report, Nike’s stock was down 22% this year.

The results from Nike bode well for other sportswear retailers like Adidas and Puma with similar global exposure, analysts say. To be sure, Nike has yet to provide an outlook for its upcoming fiscal year, which begins in June, due to a number of uncertainties that could change between now and when Nike reports its quarterly results. his 4. That still leaves room for trends to turn in the other direction.

In the three-month period ending February 28, Nike said sales in China fell 8% year-on-year, better than the 12% decline analysts had predicted. This is also a significant improvement from the 24% drop Nike booked in the previous quarter. China is notably Nike’s most profitable market.

Wedbush analyst Tom Nikic said in a note to clients that the biggest gainer for Nike stock was China, but that the region is “moving in the right direction” for now.

“With significant and lasting brand momentum [earnings] Driven by a direct-to-consumer initiative, we believe Nike remains one of the highest-quality, highest-visibility growth stories in our space,” he said. .

In a post-earnings meeting with analysts, Nike’s management team explained the steps the company has taken to win the favor of overseas shoppers. For example, Nike has partnered with two Chinese retail distributors, Top Sports and Pou Sheng, to expand its reach in the region. It also cites a recent branding campaign tied to the Beijing Olympics.

“We are encouraged by this momentum and that speaks to our optimism for a return to the long-term growth algorithm,” said CFO Matthew Friend. “In the short term, we are monitoring Covid-related lockdowns in the market and the Q4 impact of these lockdowns is unclear at this point … but it looks different.”

During the fourth fiscal quarter, Friend said Nike expects to see continued improvement in China as it continues to track the recent increase in Covid cases and new lockdowns.

Evercore ISI analyst Omar Saad called the quarter a “turning point” for Nike in China. “We think the strong performance alleviates key concerns that Covid has significantly derailed Chinese demand,” he said in a note to clients. “We also think this raises concerns that any shift in demand for domestic brands will significantly hamper Nike’s growth.”

For the current financial year, Nike reiterated its expectation that sales will increase by a single-digit average compared to the previous 12-month period. Analysts forecast revenue to grow 5.3%.

This story is evolving. Please check back for updates.

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