Why This Analyst Says Nike Can Regain Momentum in China

Nike could show further recovery in China when it reports earnings for the first quarter, according to a recent note from UBS analyst Jay Sole.

In its fourth quarter results, reported last month, Nike’s Greater China revenue grew 25 percent. In a call with investors, Nike CEO and president John Donahoe said the company would continue to invest in the region with innovations and hyper-local activations.

“Nike remains the No. 1 brand in China and brand momentum is improving,” wrote Sole in a Tuesday note, following a meeting with management. “Nike is further poised to rebound given clean inventory, a full innovation pipeline, and IT investments now in place.”

Nike said it had a record-breaking performance during the 6/18 shopping holiday in China, and was the No.1 sports brand on Tmall, Alibaba’s China e-commerce service. Nike is also seeing returns, particularly among Gen Z, from its focus on combining innovation with local storytelling.

Nike CFO Matthew Friend said that in the fourth quarter, Nike saw its highest levels of full-price selling in the region in eight quarters.

“Innovation is very important in China and Nike believes its new products will help,” wrote Sole. “Nike continues to leverage local insights to make more local products — local fit, color, storytelling.”

Compared to other brands with a presence in China, Nike has seen particularly strong momentum in the region since the country reopened in January of 2023, outshining its competitors significantly. In its most recent quarter, Skechers saw a growth of 3 percent growth in China. Adidas was down 9 percent in the region.

Notably Puma on Wednesday reported Q2 sales growth in Greater China of 36 percent, though CEO Arne Freundt was cautious about the numbers, saying that 2023 will be more of a “transitional year” for China. Puma’s almost 20 percent growth seen in the first six months of this year will likely continue in the second half of 2023, he predicted.

Nike’s strength in China is bolstered by a strong team of Nike employees situated there. Nike also uses locally driven apps to promote products and connect to consumers on a local level.

“Nike is aware of local competitors, but China is still an incredibly attractive market and growing at a rapid rate,” Sole wrote. “Nike feels like it has what it needs to compete.”

Looking ahead, Nike expects fiscal year 2024 revenues to grow in the mid-single digits, accounting for headwinds from the wholesale shipping timing from the prior year. In Q1, Nike expects revenues to be flat to up in the low single digits due to its efforts to reduce excess inventory.