Nike stock tumbles after HSBC downgrade linked to China weakness

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Nike (NKE) Shares fell on Monday after HSBC analysts cut their rating target on the world’s largest sportswear company amid concerns over its weakened foothold in China.

HSBC analyst Erwan Rambourg lowered his rating on the group to “hold” to “buy”, with a price target of 182 dollars per share, noting the weakening of demand in China, one of the key markets of the band. In fact, Nike’s sales in China fell 24% from a year ago to $1.844 billion in the three months to November, although chief financial officer Matthew Friend said the decline was “massively affected by supply disruptions from Vietnam” as well as local measures put in place to stop the spread of Covid infections in the world’s second-largest economy.

Adidas, Nike’s main Western rival in China, has seen sales drop in the region 15% to 1.155 billion euros ($1.31 billion) in the three months ending September.

“We were hoping that Western brands would have started to regain a foothold (in Chinese demand), but we don’t see any signs of a real recovery, and the extent of Nike’s decline has shocked us a bit,” Rambourg said of HSBC.

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“The stock-outs created during the July-September 2021 shutdowns and in the following months (with only a gradual reopening) are expected to continue to impact the top-line of Western sporting goods players for at least the first months of 2022e , due to longer lead times for goods to hit shelves,” he added.

Nike shares were down 4% in early trading Monday to change hands at $150.60 apiece.

Nike said last month that shutdowns in Vietnam, its main manufacturing hub, prevented 130 million units of product from hitting shelves last quarter, the company said, but record Black Friday sales for its digital division helped overall North America revenue rise 12% to $4.48. billion, offsetting the drop in sales in China

Revenue for Nike Direct, its consumer-focused division, rose nearly 30% in North America thanks to gains in apparel and equipment. The shoes, Nike said, were essentially flat.

Overall, Nike earned 83 cents per share – well ahead of Street’s consensus forecast – on sales of $11.4 billion, while noting that it is “increasingly confident” that supply chain issues will normalize in the first half of the next calendar year, although uncertainty will continue to linger.

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