Spoilsport

Image source: patrimonio designs ltd, Abambeel, Angelin Anak - Shutterstock

What's going on?

Sportswear giant Nike gave a disappointing quarterly update earlier this week.

What does this mean?

Nike’s revenue and profit beat expectations last quarter, on the back of fine performances in Europe, the Middle East and Africa, and Asia and Latin America. But there were a couple of major problems under the surface. For one thing, this was the third-straight quarter where demand for the company’s products exceeded supply, which caused sales in North America – the company’s biggest market – to fall 5% from the same time last year. And for another, Chinese lockdowns impacted around two-thirds of the company’s business in the country, dragging sales in the region down by 19%.

Nike wasn’t particularly positive going forward either, saying it didn’t expect revenue to grow much – if at all – this quarter. And even the announcement of a new $18 billion stock buyback program didn’t help ease an irate investor, who sent the company’s stock down 3%.

Why should I care?

The bigger picture: Nike hands its rivals extra sales.
Nike’s shift toward direct sales and away from wholesale revenue continued to play out last quarter, with the former up 7% and the latter down 7%. The strategy isn’t without its risks, mind you: it leaves retailers like Footlocker with more shelf space in their stores, which is space they’re now more likely to give to Nike’s competitors. That’s especially notable because those retailers tend to be fairly discount-happy, which could go down a treat as cash-strapped shoppers start to look for quality brands at lower prices.

Zooming out: Nike hands even more rivals extra sales.
Nike also announced last week that it’s leaving Russia, faced with the prospect of a law that would allow the government to seize its assets and impose criminal penalties on it. That, analysts suspect, provides a great opportunity for both local and Chinese sportswear brands – including Li Ning and Anta – to make even more of a dent in Western companies’ market shares.

Originally posted as part of the Finimize daily email.

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