The Chinese Market May Drag Down Nike'S Profit Growth In This Fiscal Quarter

For analysts and investors who pay attention to the first fiscal quarter report released by Nike this week China's economy The slowdown has led to a decline in consumer demand, and the Chinese market is causing serious concern.

Camilo Lyon, an analyst at Canaccord Genuity, an investment bank, said that in view of the widespread problems of product inventory backlog and excessive discount promotions in the whole market, we are becoming more cautious about Nike's business in China. Lyon has just finished a week-long trip to China. He said that there was no doubt that Nike was in a strong leading position in China, but this advantage was also affected by various macro pressures and the fierce competitive promotion environment.

　　 Nike The sales in China in the last fiscal year totaled US $2.5 billion, accounting for more than 10% of its total sales of US $24.1 billion. Lyon estimates that China contributes 30% of the operating profit to the sports equipment giant.

In June of this year, Nike's share price had the biggest decline since December 2008. Previously, Nike's profit in the fourth fiscal quarter unexpectedly dropped, and the growth of China's demand slowed down. China's orders increased by 2% in the fourth quarter, compared with 20% in the third quarter.

Lyon said that the problem is that with the deterioration of Chinese demand, domestic brands and Nike international brand We are resorting to discount promotion means to solve a large amount of inventory. The analyst found through sampling in the store in Shanghai that all goods in the store of Li Ning, the third largest sports brand in China after Nike and Adidas, were sold at a discount of 30%. He said that shoes of Anta, the lower price brand in China, were sold at a discount of 60%, while clothes were sold at a discount of 40%.

Lyon pointed out that Nike's sportswear in China is being sold at a discount of 30% to 75%, and Nike is still trying to change the types of clothing, from leisure sports style to functional route.

Lyon commented that no brand, even Nike, can be immune from this level of discount promotion; In fact, we believe that Nike still needs three to four quarters to control its inventory.

Lyon pointed out that Li Ning would close 3000 of the 8000 sales points, which also cast a shadow on the total inventory of the market. It is not good for these brands to sell together: for example, next to the five floor Li Ning store is a Nike owned store and a four floor Nike distributor store.

He said that although Nike enjoys the advantage of high-end brand status, the clustering of promotional activities will inevitably affect consumers' purchase decisions.

Lyon added that Nike can solve the problem of excessive inventory through factory outlets in the United States, but Nike has not established a similar network in China. Nevertheless, he pointed out that Nike was setting up brand guerrilla stores or temporary direct sales stores to help clear excess inventory.

Mike Binetti, an analyst at UBS, said that Nike is likely to increase discounts to local retailers at the cost of profit margins to increase orders in China. He said that we believe Nike is striving to create a positive future. Benetti has just returned from China. He said Nike is now taking action carefully.

Nevertheless, Benetti said that the accelerating demand growth in the United States is enough to offset the negative impact of China, and there is still surplus.

Analysts surveyed by FactSet said that Nike's profit is expected to drop from $1.36 per share to $1.12 per share when it releases its financial report on Thursday. Analysts predict that sales will rise from 6.08 billion US dollars to 6.43 billion US dollars driven by US demand. In addition to China, Wall Street is still paying attention to the demand of Europe, which is also an important overseas market of Nike.

Christian Buss, an analyst at Credit Suisse, said that the strong performance of the North American market may be offset by the continued downturn in the European market and challenges in the Chinese market, which are limiting Nike's rising potential