Nike hit by record streak of losses amid China concerns and merchandise stockpile

Asian country's retail sales growth decelerated to 2.5 per cent in July

A Nike store in Shanghai. The company’s weakness coincides with increasing signs of a soft consumer rebound in China. Bloomberg
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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 per cent 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 and cut its 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 growth decelerated to 2.5 per cent in July, worse than the median forecast of 4 per cent.

“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 realising that China is not going to do as much as it has in the past to boost growth, he said.

The rout wiped out nearly $13 billion of Nike’s market value, which 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 per cent this year, while the S&P 500 Consumer Discretionary Index has surged 29 per cent.

In its most recent quarterly results in late June, Nike reported earnings per share that fell just short of analysts’ expectations, indicating 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 and Champion owner Hanesbrands have likely stoked investor concern over persistently high inventory levels at athleticwear companies, and the negative impact promotions will have on their margins.

Nike is due to report its next results in late September.

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 per cent return potential over the next year.

Updated: August 23, 2023, 10:55 AM