Nike Struggles in Both China and the US: "Short-Term Recovery Difficult"

China, US Regions See 19%, 5% Sales Decline
"Concerns Over Inventory Increase and Consumption Decrease Due to Inflation"

[Asia Economy Reporter Minji Lee] Nike's stock price continues to decline amid concerns over its earnings. The main reasons are sluggish sales in the Chinese and U.S. markets, and experts advise cautious investment, stating that the stock price is unlikely to recover in the short term.

On the 3rd, Nike's stock price stood at $101.18. Over the past month, Nike's stock price plummeted by 16.35%. Recently, the stock has shown a steep decline due to concerns over the impact of lockdowns in Greater China and a decreasing trend in discretionary consumer spending in North America caused by inflation.

Nike's Q4 revenue was $12.23 billion, down 0.9% year-over-year. By region, both China and the U.S. saw a decrease in sales proportions. Sales in the China segment and the U.S. segment fell by 19% and 5%, respectively. The decline in China sales was higher than market expectations, but it was notable that North American sales also decreased. Shim Ji-hyun, a researcher at Shinhan Financial Investment, said, "This is not due to a decrease in demand but rather temporary factors," adding, "In fact, demand exceeded available inventory for three consecutive quarters."

By channel, sales in the Direct-to-Consumer (DTC) segment increased significantly. With a channel strategy shift expanding DTC and reducing the proportion of wholesale partners, Nike Direct sales rose 7% year-over-year to $4.8 billion, while wholesale sales decreased 7% to $6.8 billion.

The gross profit margin (GPM) contracted to 45%. The main causes were a strong dollar, inflation, and rapid inventory aging in the Greater China region. Total inventory increased 23% year-over-year to $8.4 billion, affected by extended lead times due to ongoing supply chain disruptions since last year, which increased inventory in transit.

Nike set a target for a low double-digit sales growth rate of around 10% for 2023, along with product price increases. Jung Woo-chang, a researcher at Mirae Asset Securities, analyzed, "Considering the sluggish U.S. consumer market in the second half of this year and the continuous market share gains of Chinese domestic sportswear brands driven by the 'Guochao' trend, the management's 2023 sales growth target is somewhat aggressive."

Researcher Shim added, "Concerns remain over increased inventory, potential future discount sales, costs related to supply chain disruptions, and expenses from suspending operations in Russia, which are residual risks not expected to be resolved soon. However, it should be noted that demand for sports apparel is much more resilient than the market's reflected concerns."

This content was produced with the assistance of AI translation services.