Nike gains despite China slump as investors eye turnaround progress
Nike's Recent Performance and Market Outlook
By Savyata Mishra and Akriti Shah
July 1 (Reuters) - Shares of Nike rose on Wednesday as investors assessed CEO Elliott Hill's efforts to revive growth, though the sportswear giant's persistent sales slump in China and weak outlook continue to keep Wall Street on edge.
Despite modestly beating fourth-quarter revenue estimates on Tuesday, the company's China sales slumped 17%, and it expects overall sales to continue declining in the first half of fiscal 2027, underscoring the uneven nature of its recovery.
Shares rose 3% on Wednesday after early trading volatility.
Turnaround Efforts and Investor Sentiment
"The Nike turnaround is progressing slowly," Telsey Advisory Group analyst Cristina Fernandez said, adding that sales trends remain weak in large parts of the business such as sportswear and in international markets, and are unlikely to rebound before fiscal 2028.
Nike has been struggling to regain momentum after losing market share to rivals such as Anta, Li Ning and Hoka. The stock had already fallen about 35% this year.
Margins Lead Choppy Recovery
Nike CEO Hill is pivoting the company back to its premium sporting roots, prioritizing tighter inventory, more full-price selling and rebuilding strained wholesale ties over chasing sales.
The company's quarterly gross margin, excluding a $986 million one-off tariff relief benefit, fell 10 basis points year-on-year to 40.2%. However, it forecast a slight expansion in first-quarter gross margin.
Market and Analyst Reactions
"The company seems to be on the right track in many ways and it didn't really justify a bit of a sell-off today," said Steve Sosnick, chief strategist at Interactive Brokers. "The market's recognizing that there's more good news in the Nike quarter than there is bad news."
Still, some of the gains on Wednesday were less about the company's earnings and more a reflection of "smart buyers stepping in today to get a piece of this action," said Thomas Hayes, chairman at Great Hill Capital. A lot of bad news was priced in, he said.
Innovation and Product Launches
Nike is stepping up innovation, with more than a dozen footwear launches planned for the back half of the current fiscal, though Hill cautioned it would take time before they translate into sustained growth.
The company said stronger World Cup-related marketing, a faster pace of product launches and a rebound in soccer demand after a slowdown in April were proof of improving momentum.
"Sportswear and Jordan Streetwear remain an overhang and will take time to recover, but the core business is stabilizing," Jefferies analysts said.
The sportswear giant's fourth-quarter revenue fell 4% to $10.97 billion and it projected a low-to-mid-single-digit percentage drop in revenue in the first half of fiscal 2027.
China Weakness Persists
Nike expects sales in China to remain under pressure as it works with retail partners to clear excess inventory, outgoing finance chief Matthew Friend said.
Greater China, which accounts for roughly 15% of Nike's annual revenue, is its third-largest market after North America and Europe, the Middle East and Africa.
Signs of Progress in China
Still, some analysts said there were early signs that Nike's efforts to reset the business in the region were gaining traction, as evidenced by a smaller decline in fourth-quarter sales compared with the company's earlier forecast of roughly a 20% drop.
"Our concerns about declining sales in China and sportswear are offset by inflecting margins," Bank of America analysts said.
(Reporting by Akriti Shah and Savyata Mishra in Bengaluru; Additional reporting by Danielle Kaye in New York and Avinash P and Purvi Agarwal in Bengaluru; Editing by Shinjini Ganguli and Diti Pujara)