Nike Faces Unprecedented Stock Decline Amid China Concerns and Inventory Challenges
Manila, Philippines — Nike Inc. is bracing for an unparalleled losing streak as mounting worries about China’s sluggish consumer recovery and elevated merchandise stockpiles continue to cast shadows over profitability within the activewear sector.
The company’s shares plummeted by up to 2.1 percent, hitting $100.73 on Tuesday. This marks the ninth consecutive session of losses, constituting the longest streak since the company’s initial public offering in December 1980. The latest drop follows the disappointing fiscal second-quarter results of retailer and Nike customer, Dick’s Sporting Goods Inc., which also slashed its profit outlook due in part to increased theft at its stores.
Nike’s current weaknesses align with growing signs of a subdued consumer rebound in China, a crucial growth market for the sports-gear titan. China’s retail sales growth slowed to 2.5 percent in July, falling short of the anticipated 4 percent.
Market strategist Matt Maley from Miller Tabak + Co. noted, “Investors are realizing that China’s growth is going to be slower.” He emphasized that the realization is dawning that China won’t deploy the same measures it used in the past to stimulate growth.
The downward spiral has eroded nearly $14 billion from Nike‘s market value, currently standing at $154 billion. Even before this recent slump, Nike struggled to keep pace with broader market advancements. This year alone, its value has dipped by 14 percent, while the S&P 500 Consumer Discretionary Index surged by 29 percent.
Nike‘s latest quarterly results in June revealed earnings per share slightly below analysts’ predictions, signaling that the company is still grappling with excess inventory that necessitates discounts. Wall Street remained unimpressed by its outlook for the year.
Analyst Tom Nikic from Wedbush indicated that recent earnings reports from Under Armour Inc. and Hanesbrands Inc., owner of Champion, have likely intensified investor concerns regarding consistently high inventory levels at athleticwear companies. These concerns extend to the adverse impact that promotions will exert on profit margins.
Anticipation surrounds the earnings report from Foot Locker Inc., scheduled for Wednesday, as it often offers insights into the brands’ performance. This report is seen as an indicator for Nike, which is set to release its results in late September. In 2022, Foot Locker acquired 65 percent of its athletic merchandise from Nike.
The majority of analysts tracked by Bloomberg still maintain an outperform rating on Nike shares, with 25 buy ratings, 11 holds, and five sells. The average analyst price target stands at $127, suggesting potential returns of about 26 percent over the upcoming year.