Analysts see China as a drag, or “much ado about very little”

Nike (NKE) is expected to release its quarterly results after the bell on Thursday, with analysts questioning whether the brewing political problems in China will have an impact on the sports equipment giant’s results.

Here’s what Wall Street expects when Nike releases its fiscal fourth quarter results, according to a consensus forecast from Bloomberg:

Q4 Adjusted Earnings Per Share (EPS): 50 cents

Q4 turnover: $ 11.033 billion

However, analysts are increasingly worried about the world’s second-largest economy, a crucial region for the sportswear giant. The Swoosh brand has had its problems in the Chinese market, due to the boycott of several Western companies. Nike has been criticized for the brand’s earlier statements criticizing China for alleged human rights violations against Uyghurs in northern Xinjiang province.

The explosive situation in China even prompted Cowen Equity to lower its price target for Nike from $ 155 to $ 145.

“Throughout its history, Nike has consistently risen above controversy and tough macro environments – but the situation in China is delicate,” Cowen analyst John Kernan said in a recent note, adding that he estimated the country will account for nearly 40% of sales growth for the next few years.

BEIJING, CHINA – APRIL 08: People walk out of a Nike store in a shopping area on April 8, 2021 in Beijing, China. (Photo by Kevin Frayer / Getty Images)

Stifel analyst Jim Duffy told Yahoo Finance that supply chain issues and demand at the start of the quarter in Greater China pose two key risks. However, the company considers these risks to be short-term in nature.

“Challenges with the availability of shipping containers and port congestion have resulted in mismatches between demand and inventory for the consumer,” particularly in North America, said Duffy. “Supply issues have persisted to this day and will likely be a barrier to gross margin in the near term. . “

Meanwhile, Duffy said the situation in China is likely temporary.

“It was really a nationalistic sentiment fueled by social media and you know just like social media and all over the world it tends to go on for a few weeks and then people move on,” the analyst explained. .

“Nike is very well positioned for the long term in China because in building the brand over the years, they have been very respectful of Chinese culture and try to be part of the community. And so they built a good foundation on which to develop the brand in the future, ”he said.

And Sam Poser, analyst at Williams Trading, says China’s concerns are “much ado about very little.” Poser even expects Q4 revenue for Nike to grow 40.4% reported and 31.5% on an FX neutral basis.

“The brand here [ in the U.S.] is insane and they ultimately put stocks in a position where even with the most moderate distribution channels, they created a pattern of attraction, ”Poser told Yahoo Finance. He also expects Nike to see solid growth in online sales this quarter.

However, analysts are starting to factor in the post-pandemic environment, as stores reopen and consumers return to work, which can translate to less sports leisure shopping. Still, in a recent memo, Williams Trading suggested that Nike’s built-in benefits might outweigh some of the drawbacks.

“Nike continues to gain stakes and consolidate its position as the world’s most dominant athletic footwear and apparel brand,” the company added.

Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.

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