Nike may stumble over COVID curbs in China, Russia pulls out

March 18 (Reuters) – Wall Street takes a gloomy view of Nike Inc ahead of its quarterly results on Monday as rising COVID-19 cases in China, the Russia-Ukraine crisis and lingering supply issues threaten affect the sportswear giant’s 2022 sales.

At least 10 brokerages slashed share price targets this week amid fears that an increase in strong demand for sneakers in North America could be offset by ongoing shortages, stemming from factory closures at the major Vietnamese supplier last year.

Nike’s current quarter is also expected to be affected by the blockage of commercial traffic in China due to the increase in COVID infections and the decision to temporarily close stores and online activities in Russia, following the invasion of Ukraine by Moscow.

“The recent rise in geopolitical uncertainty, rising oil prices and the growing strength of the US dollar pose a risk of slower growth for Nike’s international segments going forward,” Jefferies analysts said.

THE CONTEXT

Earlier this month, Nike’s main rival, Adidas Inc (ADSGn.DE), reported a blow to sales due to the shutdown of operations in Russia and COVID-related disruptions in Vietnam. Read more

Credit Suisse analysts cut their forecast for current-quarter Nike revenue growth in Europe to 7% from 15%, largely due to an estimated 2% drop in total sales from the release of the Russia.

Nonetheless, resilient demand despite higher prices and a pivot to selling more products directly to consumers should ease pressure from rising supply chain costs on Nike’s margins.

“There is still a lot of strength in the way Nike manages its retail strategy and in its product. Both of these strategies are critical for its future,” said Jessica Ramirez, retail analyst at Jane Hali & Associates. .

* Analysts on average expect Nike to report third-quarter revenue of $10.59 billion, up from $10.63 billion at the start of this week. Last year’s third quarter revenue was $10.36 billion

WALL STREET FEELING

* The current average analyst rating on NKE shares is “buy”, with 29 “strong buy” or “buy” ratings, seven “hold” ratings and two “sell” or “strong sell” ratings.

* Average price target is $168.24, down from $181.35 in early March

Reporting by Uday Sampath in Bangalore; Editing by Sriraj Kalluvila

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