“We’re at the beginning of a sneaker course,” Omar Saad, managing director at Evercore ISI, said on Yahoo Finance Live (video above). “People wear more sneakers. They wear more sneakers. Their feet are quite accustomed to the comfort that sneakers and other comfortable shoes provide during COVID and are reluctant to go back to uncomfortable shoes on a daily basis just for special occasions.”
According to Saad, Nike “is the best positioned company to take advantage of this massive athletic footwear cycle”.
Over the past two decades, Nike stock has consistently outperformed the S&P 500 and has been pioneer Of sorts for the retail industry. However, the apparel giant’s shares are down 45% year-to-date, trailing the 21% decline in the S&P index.
While increased demand could give Nike a much-needed boost, it remains to be seen if it can overcome supply pressures from the stock-laden retail industry.
“We think it’s going to be a really tough holiday [season]And part of that is really about the 2023 future buying behavior in the wholesale channel,” Adrian Yeh, managing director at Barclays, told Yahoo Finance. Nike still has about 55% in the wholesale channel even though it is making great strides in moving to [direct-to-consumer]. That’s kind of the essence of the near-to-medium range genre.”
Nike’s performance this holiday season may be in the hands of the biggest brands. The newest shoe from LeBron James’ signature collection, the LeBron XX, is expected to be introduced just before the start of the NBA season. And in December, the cyclical campaign of Jordanian-branded retro products is set to drop, prompting fans to grapple with the cold weather and camp outside the stores in years past.
‘Uncertain time period’ in China
Beyond inventory accounts, sneaker brands have been cruising around struggling to reopen in China, a key region contributing to sales growth.
Nike’s sales in Greater China missed estimates last quarter as COVID-19 lockdowns continued to affect business.
“In the fourth quarter, revenue fell 20% on a currency-neutral basis and EBIT declined 55% on a reported basis,” Matt Friend, Nike’s chief financial officer, said on a fourth-quarter earnings call in June. “This comes after the most widespread COVID disruption in the region since 2020, affecting more than 100 cities and more than 60% of our business.”
Yih said the lower revenue could be a ‘transitional problem for the coronavirus in the short to medium term’, but it could also be early evidence of consumer preference for local brands in China.
Nike and other brands targeting expansion in China, such as Adidas (ADDYY), under the shield (UA) and Lululemon (lulu), faced greater competition from domestic brands such as Li-Ning and Anta, which saw revenue growth and increased market share.
“If you look at the first-half numbers, you will find that Li-Ning is up 22%,” Yi said. “Anta had a 14% market share. You can compare that to Adidas, down 35%, and then, in the first half of the year that we know, from Nike, it’s down 12%. And so we think that’s a very uncertain time period. “.
Brad Smith is an anchor at Yahoo Finance. Follow him on Twitter Tweet embed.
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