Nike (NYSE: NKE), the world’s leading sports apparel and footwear company, saw its stock price drop for the 10th consecutive day on Wednesday, marking the longest losing streak in its history as a public company since its IPO in 1980. The shares closed about 2.7% lower at $101.46, after falling as much as 5% earlier in the day.
Foot Locker Earnings Disappoint
One of the main reasons for Nike’s decline was the disappointing quarterly results from Foot Locker (NYSE: FL), one of its primary wholesale partners. Foot Locker reported another quarter of declining sales and lowered its guidance for the second time this year, citing a slowdown in consumer spending, especially among its lower- to middle-income target customer base.
Foot Locker’s CEO Mary Dillon said on an analyst call that the company had not seen the full weight of the macro environment on its customers when it outlined its Lace Up plan and its long-term targets in March. She added that consumers have been more selective in recent months when it comes to shoes and clothes and have focused their dollars more on services and experiences.
Foot Locker’s woes reflect the broader challenges facing the footwear sector, which has been hit by inflation, supply chain disruptions, labor shortages, and changing consumer preferences. According to NPD Group, a market research firm, U.S. footwear sales declined by 4% in July compared to the same month last year.
China’s Uneven Recovery Weighs on Nike
Another factor that has been weighing on Nike’s stock is the uneven recovery of China, one of its most important and profitable markets. China accounted for 18% of Nike’s total revenue and 28% of its operating income in fiscal 2021, which ended in May.
However, China’s economic growth has slowed down in recent months due to the resurgence of Covid-19 cases, regulatory crackdowns on various sectors, and geopolitical tensions with the U.S. and other countries. These factors have dampened consumer confidence and spending in China, which could hurt Nike’s sales and margins in the region.
Nike has also faced some backlash from Chinese consumers over its stance on human rights issues related to Xinjiang, where allegations of forced labor and genocide have been made against the Chinese government. In March, Nike issued a statement saying that it was concerned about the situation in Xinjiang and that it did not source products from the region. This prompted some Chinese celebrities and social media users to boycott Nike and other Western brands that expressed similar views.
Nike’s CEO John Donahoe said on the company’s fourth-quarter earnings call in June that he remained confident about Nike’s long-term potential in China and that he expected a recovery in consumer sentiment over time. However, he also acknowledged that the situation was dynamic and complex and that there was some uncertainty about how it would evolve.
What’s Next for Nike?
Despite the recent headwinds, Nike still has some strong competitive advantages and growth opportunities that could help it bounce back in the future. The company has a loyal fan base, a powerful brand image, a diversified product portfolio, a robust digital platform, and a global presence. It also has a track record of innovation, resilience, and adaptability that has helped it overcome many challenges in the past.
Nike is expected to report its first-quarter earnings for fiscal 2022 late next month. Analysts are projecting revenue of $12.57 billion, up 18% year over year, and earnings per share of $1.12, up 19%. However, these estimates could be revised lower depending on how Nike performs in August and September.
Nike’s stock is currently trading at about 32 times its forward earnings, which is below its five-year average of 35 but above its industry average of 25. The stock also pays a quarterly dividend of $0.275 per share, which translates to an annual yield of about 1%.
Nike’s stock may face some more volatility and pressure in the near term as the footwear sector and China remain uncertain. However, investors who are looking for a long-term play on the sports apparel and footwear industry may find Nike attractive at these levels.
References:
- Why is Nike stock NKE down? Foot Locker earnings, China economy – CNBC
- Nike Inc (NKE) Stock Price & News – Google Finance
- Why Nike Stock Dropped Today – The Globe and Mail
- Nike’s Stock Down 13% Over Last Year. What’s Next? – Forbes
- Don’t Kick Nike Stock While It’s Already Down – InvestorPlace
