Could Nike Benefit from China’s Economic Stimulus? Analysts Weigh In

With a YTD gain of over 24%, Nike (NYSE: NKE) is the third worst-performing Dow Jones constituent this year, faring better than just Intel and Boeing which have been facing even deeper troubles. Just when it seemed that the sneaker giant had put the worst behind it, its fiscal Q1 earnings came in as a dampener. Could Nike benefit from the economic stimulus in China? Here’s what experts are saying.

Notably, Nike gets around a sixth of its revenues from Greater China and the country has also been its manufacturing hub. It has however not been immune to the slowdown in the world’s second-biggest economy.

Nike Reported a Fall in Its Greater China Revenues

Nike reported a 4% YoY fall in its revenues in the Greater China region in the fiscal Q1. While the revenue decline was below the 10% overall fall that the company saw and Greater China was the second-best performing region behind just Asia Pacific and Latin America, the company was not satisfied with its performance in the region.

During the Q1 earnings call, CFO Matthew Friend said, “We saw particular softness in traffic on NIKE Digital as well as in our partner stores in Greater China. As a result, retail sales underperformed our plan, including our wholesale partners, with slightly elevating marketplace inventories requiring higher levels of promotional activity in Q1 to drive conversion.”

Overall, Nike reported revenues of $11.59 billion in the fiscal first quarter which were 10% lower YoY and below the $11.65 billion that analysts were modeling. The company’s per-share earnings came in at 70 cents which was ahead of the 52 cents that analysts were expecting.

Nike’s guidance for the current quarter was also below Street estimates. The company forecast sales to fall by between 8%-10% in the current quarter which is worse than the 6.9% fall that analysts were expecting.

Notably, while Nike’s bottomline performance has been relatively strong, its topline growth has disappointed and it missed revenue estimates in three of the four quarters in the last fiscal year.

Last month, Nike announced that Elliott Hill would replace John Donahoe as the company’s CEO effective October 14, 2024. The move came after Nike’s stock’s dismal performance where it has been underperforming the markets since peaking in late 2021.

Nike Withdrew Its Annual Guidance

Nike has withdrawn annual guidance and intends to provide quarterly guidance during this fiscal year. “This provides Elliot with the flexibility to reconnect with our employees and teams, evaluate the current strategies and business trends, and develop our plans to best position the business for fiscal ’26 and beyond,” finance chief Matthew Friend said on an earnings call with analysts,” said Nike’s CEO Matthew Friend on the decision.

Friend also tried to temper expectations about its business in Greater China in the near term while sounding bullish on the long-term prospects in the country. “Even though we’ve moderated our near-term expectations for China for the remainder of this year, sport is a growth industry in China. Sport participation is on the rise, and we believe that we’re optimistic about the long-term possibilities for Nike in greater China,” said Friend during the earnings call.

What Would China’s Stimulus Mean for NKE?

Nike has struggled on multiple fronts in China, including from Chinese consumers increasingly opting for domestic brands over foreign ones. While China has announced a massive stimulus, some analysts believe it won’t move the needle much for Nike in its third biggest reporting segment.

The stimulus, which is a mix of both monetary and fiscal measures, triggered a rally in Chinese stocks over the last two weeks.

While Rational Dynamic Brands Fund’s co-portfolio manager Eric Clark sees CEO change as a “clear morale booster” for Nike, he does not see the company’s business in China turning around anytime soon.

“The only catalyst that there is is a new CEO with a reinvigoration of innovation, which is a bit of a prove-me story. And China just doesn’t seem like it’s going to change anytime soon,” said Clark.

He added, “If I can get Nike at $75 or under, I’d probably do it … but it’s just not going to be put in the growth basket, I don’t think, anymore.”

China Is Battling a Structural Slowdown

Notably, while China has announced its biggest stimulus since the COVID-19 pandemic, many analysts believe it won’t be enough given the deep and structural slowdown.

In a note, Bank of America analyst Chen Luo said, “Policies need to be decisive, given massive wealth destruction & property turmoil before. We believe a huge amount of work needs to be done, to repair confidence/expectations, especially amid frequent shocks from internal policy back-and-forth and external geopolitics.”

Meanwhile, Chinese stocks led the gains in Asia over the last two weeks, and commodities and commodity shares rallied in hopes of a recovery in demand from China. However, the Chinese economy faces some structural challenges, and prospects of a worsening trade war with the US are not helping matters.

While the stimulus measures are positive for companies like Nike that count China as among their major markets, some analysts are still not too convinced that the company is out of the woods yet after dismal topline performance for the last many quarters.