Written by Brenda Nakalema

Nike Earnings Beat Estimates but China Lags Behind

Nike (ticker: NKE) shareholders might be used to being good at a lot of things, but losing definitely isn’t one …

Nike (ticker: NKE) shareholders might be used to being good at a lot of things, but losing definitely isn’t one of them, and on Monday, they experienced a release at last. The athletic- apparel giant posted a better-than-expected fiscal fourth quarter.

Nike earned 90 cents per share on revenue of $12.2 billion. Analyst expectations for the brand previously stood at 81 cents a share on sales of $12.07 billion. However, despite this fantastic performance, China lagged behind with revenues that fell 20% below expectations, while Nike’s North American business was down by just 5%. However, the company still registered double-digit sales gains in its other regions on a constant-currency basis.

The company isn’t a stranger to big wins and has posted amazing figures amounting to nearly 90% in the past half-decade, ahead of the S&P’s 500 60% gain. The company’s track record speaks for itself, with many years under its belt where it easily outpaced its competitors, with the stock reaching all-time highs during the pandemic.

Like many others this year, Nike stock dipped, with the stock losing nearly a third of its value in 2022, compared with the broader market’s roughly 20% loss. Most analysts re-evaluated and lowered their estimates ahead of the report. According to FactSet, earnings-per-share revisions for the quarter have dropped more than 5% in the last month and are down 1.1% in the past week alone.

The ostensible reason for the conflicting results, especially the disappointing figures in China, is the fact that Nike found itself in the middle of a controversial case regarding alleged human rights violations in Xinjiang. The company faced backlash in China over Western criticisms of the treatment of the Uighur population, with western customers arguing the company wasn’t doing enough to separate itself.

Those aren’t the only headwinds that stood in the way of the company’s ability to post impressive figures from China. There’s also the reduction of demand brought on by the large-scale lockdowns amid China’s zero- Covid policy. That alone has hurt sales in the region, as evidenced by the most recent report from competitor Adidas (ticker: ADDYY) last month. On top of these problems, investors seem to be questioning the brand’s strength in its home North American market.

Although athleisure companies like lululemon Athletica (ticker: LULU) and Foot Locker (ticker: FL) reported great numbers, there is increasing worry that consumers are beginning to feel the pinch brought on by inflation and are therefore more likely to scale back their spending.

This is further exacerbated by the fact that customers already stocked up during the pandemic and are now more focused on other expenses like weddings and vacations, which have returned to pre-pandemic levels. High apparel inventory at other stores has also sparked worries about the potential for widespread discounting.

With all this worry in the air, investors breathed a collective sigh of relief after the figures were released; even then, the company still has some upcoming headwinds to face.