Nike May Trip on Covid Curbs in China, Russia Pull Out

Wall Street is taking a gloomy view of Nike Inc ahead of its quarterly results on Monday, as rising Covid-19 cases in China, the Russia-Ukraine crisis and lingering supply issues threaten to hit the sportswear giant’s 2022 sales.

At least 10 brokerages have cut the stock’s price targets this week on fears that a lift from strong sneaker demand in North America will be offset by persistent shortages, stemming from factory closures in top supplier Vietnam last year.

Nike’s current quarter is also expected to take a hit from stalling shopping traffic in China due to rising Covid infections and the decision to temporarily shutter stores and online business in Russia, following Moscow’s invasion of Ukraine.

“The recent rise in geopolitical uncertainty, increase in oil prices, and growing strength of the US dollar present risk of slowing growth for Nike’s international segments ahead,” Jefferies analysts said.

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The Context

Earlier this month, Nike’s main rival Adidas Inc flagged a knock to sales from closing operations in Russia and Covid disruptions in Vietnam.

Credit Suisse analysts cut their forecast for Nike’s current quarter revenue growth in Europe to 7 percent from 15 percent, largely due to an estimated 2 percent hit to total sales from the Russia exit.

Still, resilient demand despite higher prices and a pivot to selling more products directly to consumers are expected to ease the pressure of higher supply chain costs on Nike’s margins.

“There is still a lot of strength in the way that Nike is running its retail strategy, and in its product. Those two strategies are key for its future,” said Jessica Ramirez, retail analyst at Jane Hali & Associates.

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The Fundamentals

Analysts on average expect Nike to report third-quarter revenue of $10.59 billion, down from $10.63 billion at the start of this week. Third-quarter revenue last year was $10.36 billion. Full-year revenue expectations have taken an even bigger beating since Monday, slipping to $46.90 billion from $47.06 billion. Third-quarter revenue from China is projected to fall nearly 12 percent to $2.01 billion, after slumping 19.8 percent in the prior quarter. The company is expected to report third-quarter earnings per share of 71 cents, according to IBES data from Refinitiv, compared with the 76 cents reported a year earlier. The Dow component has declined over 22 percent since the start of this year to Thursday’s close, compared with the 5.1 percent fall in the index for the same period.

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Wall Street Sentiment

The current average analyst rating on NKE shares is “buy”, with 29 rating it “strong buy” or “buy”, seven rating it a “hold” and two rating it a “sell” or “strong sell”. * The mean price target is $168.24, down from $181.35 at the start of March

By Uday Sampath; Editor: Sriraj Kalluvila

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