Skip to main content

Nike Shares Slide After Coronavirus Hits China Growth

Nike' cautioned investors that the spreading coronavirus will have a "material impact" on its operations in China, the sportswear group's biggest market.

Nike Inc.  (NKE) - Get Free Report shares slipped lower Wednesday after the world's biggest sportswear group said the spreading coronavirus in China would have a 'material' impact on its operations in the world's second-largest economy. 

Nike said about half of its stores in China have been temporarily closed, with others operating under reduced hours or seeing "lower than planned retail traffic" as heath authorities confirm some 25,000 cases of the respiratory-focused virus and the government continues to restrict travel and extend the country's Lunar New Year shutdown.

"In the short term, we expect the situation to have a material impact on our operations in Greater China," Nike said in a statement late Tuesday. "However, Nike's brand and business momentum with the Chinese consumer remains strong,"  

Nike said it will provide further details on the coronavirus impact during its third quarter earnings conference call scheduled for February 19.

Nike shares were marked 0.9% lower in early trading Wednesday to change hands at $100.69 each, a move that could clip around half of yesterday's gains following an upgrade from the investment bank UBS.

European rivals were also on the back foot following Nike's cautionary statement last night, with Germany's Adidas AG  (ADDYY)  falling 0.3% and Puma SE undefined sliding 0.1% in Frankfurt trading. 

Nike told investors late last year that China "continues to set the pace" for the company's global growth, lead by the iconic Air Jordan brand, which helped drive a 20% year-on-year increase in second-quarter sales. In fact, revenue from its China operations has risen 64%, to around $6.2 billion per year, since 2016.

In terms of online sales, the numbers were even more compelling, with digital revenue rising 70% from the year-earlier period, thanks to partnerships with online giant Tencent's Tmall and WeChat. 

Analysts at BMO Capital Markets, however, note the group's "unparalleled "history when it comes to size and scope of its North America sales, surpassing the general ~$5 billion revenue cap we’ve seen across the board, showing no signs of slowing."

"We believe Nike’s budget/ability to outspend competitors proves a key long-term competitive advantage for the company, granting it Amazon-esque characteristics," said BMO analyst Simeon Siegel, who initiated coverage on the group with an outperform rating and a $110 price target earlier this week.