Ahead of Nike’s anticipated first quarter earnings report next week, analysts are already outlining the top issues they expect to dominate the conversation.
Amid a retail industry in flux, market watchers are looking for Nike’s recovery progress in the two crucial regions of North America and China. While some analysts are more skeptical about Nike’s short-term progress potential in Q1, most remained confident in the Swoosh’s potential for long-term growth.
“China recovery uncertainty and lingering questions of brand/product strength could remain in focus,” wrote Baird analyst Jonathan Komp in a note to investors this week, adding that recovery in China appears “lackluster” given macroeconomic headwinds in the region and softer performance from local retailers there.
Stifel managing director Jim Duffy also warned of potential headwinds for Nike in China and North America this quarter, noting that comments on both regions will be “under particular scrutiny” during the call next week.
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“Nike continues to outperform western competitors in the region but soft consumer spending is an impediment,” Duffy wrote. “Our investor conversations suggest commentary on a softer China is well anticipated into the report.”
However, despite potential slowdowns in North America and China, Duffy said he still views Nike’s full year guidance as “achievable.”
In June, Nike said it expects fiscal year 2024 revenues to grow in the mid-single digits, accounting for headwinds from wholesale shipping timing from the prior year. In Q1, Nike expects revenues to be flat to up in the low single digits due to its efforts to reduce excess inventory. In Q4, North America revenues grew 5 percent and Greater China revenue grew 25 percent.
In a call with investors in June, Nike CEO and president John Donahoe said the company would continue to invest in China with innovations and hyper-local activations. The company also noted that it had a record-breaking performance during the 6/18 shopping holiday in China, and was the No.1 sports brand on Tmall, Alibaba’s China e-commerce service. Nike is also seeing returns among Gen Z in China from its focus on combining innovation with local storytelling.
Not all analysts were concerned with Nike’s potential for recovery in China. UBS analyst Jay Sole said in a note this week that he is “bullish on Nike’s long-term growth prospects in China,” citing data from a recent UBS consumer survey analyzing the market in the region. According to the survey, Nike ranks as the most premium brand in China, a region where consumers appear eager to trade up to the best quality sportswear.
UBS also found that consumers in China are unlikely to be strongly motivated to purchase domestic sportswear brands as opposed to international brands like Nike.
“We believe Nike has the brand strength, strategy, skills, resources, and balance sheet to outperform peers through a recession,” Sole wrote.
As for North America, which has faced headwinds due to challenges in the wholesale market, UBS analysts said they expect sales in the region to “be challenged due to elevated inventory levels, tough compares, wholesale partner caution, and macroeconomic pressures weighing on consumers.”
Jane Hali & Associates analyst Jessica Ramirez also noted the potential for a slowdown in North America in Q1
“We remain concerned on the consumer slowdown in North America as consumers continue to be hit by inflation and are spending more strategically across discretionary categories,” Ramirez wrote.
Nike reports earnings for the first quarter on Thursday, Sept. 28.
