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Nike Shares Slide on Citigroup Downgrade Linked to China Boycotts

Citigroup analyst Paul Lejuez says a slowdown in China demand could pressure the sportswear giant's sales and profit margins.

Nike Inc.  (NKE) - Get Nike Inc. Report shares slumped lower Tuesday after analysts at Citigroup lowered their rating and price target on the sportswear group amid growing consumer boycotts in China.

Citigroup analyst Paul Lejuez lowered his price target on the group by $20 to $140 per share, and cut his rating to 'neutral' from 'buy', citing last month's boycotts of several foreign companies by Chinese consumers following alleged comments about the country's treatment of Uighur Muslims in Xinjiang. 

Lejuez said the political and consumer pressures could hit the group's sales in China -- one of its most important markets --- as the group finalizes its fiscal 2022 strategy. 

"Does the Chinese consumer really care? We think so. Based on a survey of Chinese consumers we conducted in early to mid-April, results show a clear favoring of Chinese athletic brands over western athletic brands," Lejuez wrote. "We do not believe a slowing China business was contemplated in Nike's May quarter, which could present both sales and gross margin risk near term. But this issue also comes at a time when management is finalizing its F22 plans, and may influence how they plan and guide their business next year."

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Nike shares were marked 2.4% lower in early trading Tuesday to change hands at $129.30 each, a move the nearly wipes out all of the stock's six-month gains. 

Last month, the screenshot of a statement attributed to Nike indicated the sportswear group was "concerned about reports of forced labor in, and connected to, the Xinjiang Uyghur Autonomous Region."

The undated statement, which gained traction on Chinese social media sites alongside similar comments from European fashion retailer H&M  (HNNMY) , was addressed by Ministry spokesperson Hua Chunying in a media briefing, who said they were based "entirely on lies."

Ethnic Uighurs, one of the few Islamic groups in China, are suspected of being forced to work against their will in the region, a charge Beijing has repeatedly and vociferously denied. Earlier this week, the U.S. government joined Europe, the U.K. and Canada in imposing travel and economic sanctions on four Chinese officials linked to Uighur abuses.

China is a crucial market for Nike, with sales in the region "setting the pace" for revenue growth, the company said during its last earnings report on March 18, "with its second consecutive $2 billion quarter and grew 42% on a currency-neutral basis with EBIT growth of 75% on a reported basis," according to CFO Matthew Friend.