【NKE Earnings】 Nike stock drops 9% after hours; expects a 20% decline in sales in the Chinese market

Nike (U.S.: NKE) warned that, because its primary market, China, is expected to fall by 20% this quarter, sales for the remainder of this year will decline. Nike’s stock fell 9% after hours, to $48.02.

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Nike expects full-year sales to record a low single-digit decline, primarily benefiting from growth in the North American market, but offset by weakness in the China market. This expectation does not match its prior estimates.

Matt Friend, the chief financial officer, said the company expects sales for the fourth quarter of the fiscal year to fall 2% to 4%, compared with the market’s prior expectation of an increase of 1.9%.

Matt Friend said the company is also aware that the environment it operates in is changing increasingly. Turmoil in the Middle East, rising oil prices, and other factors that may affect input costs or consumer behavior could all lead to unexpected market volatility, and it said it is focusing on factors it can control.

For last quarter’s results, Nike revenue was $11.28 billion, roughly flat year over year, slightly above the market expectation of $11.24 billion. Earnings per share were 35 cents, higher than the expected 28 cents.

In its largest market, North America, steady growth continued. Revenue grew 3% to $5.03 billion, but was slightly below the market expectation of $5.04 billion. At the same time, Nike’s Greater China business continued to shrink, with revenue down 7% to $1.62 billion. However, this was higher than analysts’ prior expectation of $1.5 billion.

Matt Friend said that, for now, North American consumers have not been affected by the situation in the Middle East.

Nike’s path to recovery is filled with challenges. Global trade wars have weakened its efforts to improve profitability and stimulate consumption, especially as consumers struggle to cope with inflationary pressures. Now, it must also deal with the next round of war in the Middle East. The fighting has pushed oil prices higher, which is expected to raise consumer prices, or force consumers to cut back on non-essential items such as buying new shirts and new shoes to save on other expenses.

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