How Nike is surprisingly defying Trump's trade war with China
For a company that has heavily relied on China to make its sneakers and apparel almost since day one, Nike (NKE) is sure showing no signs President Trump’s nasty trade war with the country will shred its profits in the year ahead.
Experts Yahoo Finance have talked to give high marks to Nike’s recent innovation spurt across its various product lines — allowing it to raise prices globally to offset increased sourcing costs —as the main reason for its success amidst the trade war. A casual trip to Nike’s website or app reinforce that message — the footwear, apparel and accessories style convey a sense of fashion and technical leadership that had gone missing at Nike two years ago.
No more is Nike playing second fiddle to Adidas. Sorry Kanye.
Meanwhile, others point to Nike’s significant size giving it the leadership position in negotiating very fair costs with suppliers, even as those costs for suppliers rise due to tariffs. Also aiding Nike’s financial cause pros say: growing success with selling wares on its app at full price instead of the always on sale racks at department stores and factory outlets.
Nike’s latest earnings “were simply incredible for a brand in this environment,” said SW Retail Advisors chief and long-time retail analyst Stacey Widlitz on Yahoo Finance’s The First Trade. “The product in the last 18 months has done a total 180. We were in an environment that was all about Adidas, particular in Europe, and now Nike is back in the driver’s seat.
Driver’s seat indeed.
Nike ’is a brand of China for China’
Nike’s fiscal first quarter sales grew in every single product category, in each geographic region. Surprisingly, the sales gains were paced by Greater China, where sales grew 27% from the prior year. Where Apple iPhones are being shunned for Huawei offerings in a show of nationalism amidst the trade battle, Nike is being embraced.
“Historically, we've effectively navigated through excessive duties and we’re confident that we’ll continue to do so under the current dynamic. In China, specifically, we continue to extend NIKE’s lead. In our key cities of Beijing and Shanghai, we serve a generation of digital-first consumers and we support their love of sport by helping to grow participation through grassroots programs. As I’ve said before, NIKE is a brand of China for China and the results continue to prove it out,” highlighted Nike Chairman and CEO Mark Parker on a conference call with analysts.
What’s somewhat more shocking is that Nike’s gross profit margins in the quarter gained 150 basis points from the prior year in spite of U.S. tariffs on China and rising costs in places like Vietnam and Indonesia as other industries uproot supply chains to these traditional retail production havens.
Digital sales surged 42%. Nike reiterated its fiscal year 2020 sales growth guidance as well.
“The athletic footwear cycle and brand power are solid,” said Jefferies retail analyst Randal Konik. “Nike’s business is strengthening in NA, and we expect the company to continue to recapture the share it has lost to Adidas.”
Nike’s stock is now trading at a record high. And it deserves to be.