Nike says it’s cautious on China market

The world's largest sportswear company offered a downbeat full-year forecast for gross margin and said it was cautious in its outlook for the vital China market.

The retailer said it expects the gross margin to be flat to down 50 basis points, after it reported results that surpassed analysts estimates and overcame supply-chain pressures that have persisted for many months. Management expects revenue to grow by a percentage in the low double digits this fiscal year.

Sales in the Greater China region, where Nike has struggled over the past year, fell 20% in the quarter at constant currencies and missed analysts estimates. Covid 19 shutdowns hurt its business there last quarter, but executives said yesterday on a conference call with analysts that it still sees China as a long-term growth market and will continue to invest in the region.

Chief Financial Officer Matt Friend said on a conference call with analysts that we did take a cautious approach to Greater China. We are doing that because we look at what has disrupted our performance in the fourth quarter. Nearly 60% of its business in China was affected by Covid disruptions in more than 100 cities, according to Nike. It took three weeks to return to 100% capacity, according to the central logistics center.

Shares dropped by as much as 3.5% in after-market trading on Monday. The stock had been down 34% this year through the day s close.

Global sales rose by 3% on a constant-currency basis for the quarter ended May 31, to $12.2 billion. Analysts had predicted $12.13 billion, according to estimates compiled by Bloomberg. In Europe, the Middle East and Africa, and 24% in Asia Pacific and Latin America, constant-currency revenue jumped 20%, compared to declines in North America and China.

In recent years, Chief Executive Officer John Donahoe had pulled back wholesale accounts to focus Nike on its own e-commerce while investing in partners such as Dick's Sporting Goods Inc. Direct-to- consumer revenue rose 15%, excluding currency effects.

Production issues due to Covid-related factory shutdowns have been resolved, but shipping logjams that keep stifling international trade routes are still troubling Nike. The company said many items were stuck in transit and that the stock swelled 23%.

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