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Nike Stock Slumps On HSBC Downgrade Linked to China Demand Weakness

HSBC analyst Erwan Rambourg lowered his rating on Nike to 'hold' from 'buy', citing weakness in China sales for the world's biggest sports apparel group.

Nike  (NKE) - Get NIKE, Inc. Class B Report shares moved lower Monday after analysts at HSBC cut their rating target on the world's biggest sports apparel company amid concern over its weakening foothold in China. 

HSBC analyst Erwan Rambourg lowered his rating on the group to 'hold' from 'buy, with a price target of $182 per share, noting weakening demand in China, one of the group's key markets. Nike's China sales, in fact, slumped 24% from last year to $1.844 billion over the three months ending in November, although CFO Matthew Friend said the decline was "overwhelmingly impacted by supply disruptions from Vietnam" as well as local measures put in place to stop the spread of Covid infections in the world's second-largest economy. 

Adidas, Nike's main western rival in China, saw sales in the region fall 15% to €1.155 billion ($1.31 billion) over the three months ending in September.

"We hoped Western brands would have started to regain some footing (in China demand) by now, but we see no signs of a real pick up, and the breadth of the decline at Nike was a bit of a shocker to us," said HSBC's Rambourg. 

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"Inventory shortages created during July-September 2021 lockdowns and in the following months (with only a gradual reopening) should continue to impact the Western sporting goods players’ top-line for at least the first few months of 2022e, due to higher lead times for goods to reach shelves," he added.

Nike shares were marked 4% lower in early trading Monday to change hands at $150.60 each. 

Nike said last month that closures in Vietnam, its key manufacturing hub, kept 130 million product units from hitting the shelves last quarter, the company said, but record Black Friday sales for its digital division helped overall north American revenues rise 12%, to $4.48 billion, offsetting the slump in China sales

Revenues from Nike Direct, its consumer-focused division, were up nearly 30% in north America thanks to gains in apparel and equipment. Footwear, Nike said, was essentially flat. 

Overall, Nike earned 83 cents per share -- well ahead of the Street consensus forecast -- on sales of $11.4 billion, while noting it's 'increasingly confident' that supply chain issues will normalize over the first half of the next calendar year, although uncertainty will continue to linger.