Nike posted a record streak of losses as concern over China’s sluggish consumer recovery builds and elevated merchandise stockpiles continue to weigh on profitability across the activewear industry.
The stock slid 1.4% to $101.46 on Tuesday, falling for a ninth straight session in its longest losing streak since the company’s initial public offering in December 1980. The latest drop came after retailer and Nike customer Dick’s Sporting Goods reported disappointing fiscal second-quarter results andcutits profit outlook for the year, due in part to more theft at its stores.
Nike’s weakness coincides with increasing signs of a soft consumer rebound in China, which is a key growth market for the sports-gear giant. China’s retail sales growthdeceleratedto 2.5% in July, worse than the median forecast of 4%.
“Investors are waking up to the fact that China’s growth is going to be slower,” said Matt Maley, chief market strategist at Miller Tabak + Co. They’re also realizing that China is not going to do as much as it has in the past to boost growth, he said.
The rout has wiped out nearly $13 billion of Nike’s market value, which currently stands at $155 billion. Even before the recent slump, Nike had failed to keep pace with the advance in the broader market. It’s now down 13% this year, while the S&P 500 Consumer Discretionary Index has surged 29%.
In its most recent quarterly results in late June, Nikereportedearnings per share that fell just short of analysts’ expectations, signaling that the company is still working to sell off excess inventory with discounts. Its outlook for the current year also failed to win over Wall Street.
Wedbush analyst Tom Nikic said recent earnings reports from Under Armour Inc. and Champion owner Hanesbrands Inc. have likely stoked investor concern over persistently high inventory levels at athleticwear companies, and the negative impact promotions will have on their margins.
He anticipates Foot Locker Inc.’s earnings report on Wednesday will be an important signal for Nike, which is due to report its next results in late September. Foot Locker often provides details around the performance of its brands, he said. In 2022, the retailer purchased 65% of its athletic merchandise from Nike.
Nikic has an outperform rating on Nike shares, as do the majority of analysts tracked by Bloomberg. Nike has 25 buy ratings, 11 holds and five sells, and an average analyst price target of $127, which implies about 26% return potential over the next year.
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Now, diving into the article about Nike's recent challenges:
Nike is experiencing a significant downturn, marked by a record streak of losses and a prolonged slide in its stock value. The stock has fallen for nine consecutive sessions, the longest losing streak since its IPO in December 1980. This decline is attributed to concerns over China's sluggish consumer recovery and elevated merchandise stockpiles, which are impacting profitability in the activewear industry.
The recent drop in Nike's stock follows disappointing fiscal second-quarter results from Dick’s Sporting Goods, a key retailer and Nike customer. Dick’s Sporting Goods cited increased theft at its stores as one of the reasons for cutting its profit outlook for the year. This development has contributed to the overall weakness in Nike's performance.
China, a crucial growth market for Nike, is showing signs of a soft consumer rebound. Retail sales growth in China decelerated to 2.5% in July, worse than the forecast of 4%. Investors are waking up to the reality that China's growth is expected to be slower, and there's a realization that China might not contribute as significantly to global growth as it has in the past.
The market reaction to Nike's performance has been severe, wiping out nearly $13 billion of the company's market value. Even before this downturn, Nike had lagged behind the broader market, down 13% for the year, while the S&P 500 Consumer Discretionary Index surged 29%.
Nike's recent quarterly results indicated earnings per share slightly below analysts' expectations, signaling the ongoing challenge of selling off excess inventory with discounts. The outlook for the current year also failed to impress Wall Street. This struggle is not unique to Nike, as recent earnings reports from other athleticwear companies like Under Armour Inc. and Hanesbrands Inc. have heightened investor concerns about persistently high inventory levels and the negative impact of promotions on profit margins.
Analysts, including Tom Nikic from Wedbush, express optimism with an outperform rating on Nike shares. However, the market sentiment remains mixed, with 25 buy ratings, 11 holds, and five sells. The average analyst price target of $127 implies a 26% return potential over the next year.
The upcoming earnings report from Foot Locker Inc., a significant buyer of Nike's athletic merchandise, is anticipated to provide further insights into Nike's performance. Analysts are closely watching for signals in this report, considering Foot Locker's historical significance in detailing the performance of brands it carries.
In summary, Nike is navigating a challenging period, impacted by both internal factors like excess inventory and external factors such as China's economic dynamics. The market is closely monitoring upcoming reports and indicators to gauge the company's recovery potential.
