Nike’s warning about China should alarm other companies. Nicolas Asfouri/AFP/Getty Images
Nike shares plunged on Friday after the sporting goods giant cut its fiscal year revenue forecast.
Sales in China fell short of forecasts and the company warned of headwinds in that country.
This comes as China’s post-pandemic economic recovery has fizzled and consumer demand remains weak.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by an editor.
Nike sounded another alarm about the Chinese economy, signaling that weak consumer demand could continue to weigh on companies doing business there despite Beijing’s efforts to boost growth. In its second-quarter report late Thursday, the sportswear giant beat profit forecasts, but revenue rose 1 percent to $13.39 billion (12.11 billion euros), missing forecasts for $13.43 billion (12.15). Billion euro). Sales in Greater China rose by four to $1.86 billion (1.68 billion euros), below the $1.95 billion (1.76 billion euros) expected, as growth slowed from the previous quarter.
Nike also lowered its full-year sales forecast to a 1 percent increase, after previously expecting mid-single-digit growth. Management also announced plans to cut costs by up to $2 billion (1.8 billion euros) over the next three years.
“This new outlook reflects increased macroeconomic headwinds, particularly in China, Asia, the Middle East and Europe, as well as adjusted digital growth plans based on recent weakness in digital traffic and higher promotions in the market, as well as lifecycle management of key product franchises and a stronger U.S. dollar, which negatively impacted reported sales in the second half of the year compared to 90 days ago,” CFO Matthew Friend said on the earnings call.
Nike shares fell more than 10 percent on Friday, and rivals Adidas and Under Armor fell five and three percent respectively. Shares of Foot Locker, which carries Nike products in its stores, also fell 4 percent.
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Apple is also struggling with problems in China
Other companies with significant exposure to China have also shown weakness recently. Last month, Apple said quarterly sales in China, its third-largest market, fell 2.2 percent to $15.1 billion (13.7 billion euros), well below the $17 billion expected by Wall Street ( 15.4 billion euros).
In addition to slowing consumer demand, Apple has also had to contend with Beijing’s decision to ban the use of iPhones by government employees, as well as the ongoing tendency of domestic customers to opt out local Chinese tech brands instead of opting for foreign names. Still, warnings from Nike and Apple suggest that China’s economy continues to weaken after Beijing lifted strict zero-tariff policies late last year.
Despite the central government’s stimulus efforts, there remain significant headwinds, particularly in the debt-laden real estate sector, which has raised concerns about a possible “Lehman” moment and shaken consumer confidence. This in turn has led to less spending, more precautionary saving and even signs of deflation. In the meantime have each other foreign investors retreated from the country in droves.
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Bank of America strategists warned in September that China’s flagging economy posed risks to a number of U.S. companies including Applied Materials, Broadcom, Wynn Resorts and Qualcomm.
But China’s pain could be America’s gain, especially if weak prices there lead to less inflationary pressure here, according to market veteran Ed Yardeni. China’s weak economy is particularly good news for the U.S. as it helps moderate goods inflation without a recession here, also known as “spotless disinflation,” he said last month.
Read the original article in English here.