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Today's big stories

Nike posted quarterly results that left a lot to be desired
Now that company valuations have tanked, only one factor is standing between us and even more of a stock market crash – Read Now
US banks have decided to return even more cash to shareholders

Spoilsport

What’s Going On Here?

Sportswear giant Nike gave a disappointing quarterly update earlier this week.

What Does This Mean?

Nike’s revenue and profit beat expectations last quarter, on the back of fine performances in Europe, the Middle East and Africa, and Asia and Latin America. But there were a couple of major problems under the surface. For one thing, this was the third-straight quarter where demand for the company’s products exceeded supply, which caused sales in North America – the company’s biggest market – to fall 5% from the same time last year. And for another, Chinese lockdowns impacted around two-thirds of the company’s business in the country, dragging sales in the region down by 19%.

Nike wasn’t particularly positive going forward either, saying it didn’t expect revenue to grow much – if at all – this quarter. And even the announcement of a new $18 billion stock buyback program didn’t help ease an irate investor, who sent the company’s stock down 3%.

Why Should I Care?

The bigger picture: Nike hands its rivals extra sales.
Nike’s shift toward direct sales and away from wholesale revenue continued to play out last quarter, with the former up 7% and the latter down 7%. The strategy isn’t without its risks, mind you: it leaves retailers like Footlocker with more shelf space in their stores, which is space they’re now more likely to give to Nike’s competitors. That’s especially notable because those retailers tend to be fairly discount-happy, which could go down a treat as cash-strapped shoppers start to look for quality brands at lower prices.

Zooming out: Nike hands even more rivals extra sales.
Nike also announced last week that it’s leaving Russia, faced with the prospect of a law that would allow the government to seize its assets and impose criminal penalties on it. That, analysts suspect, provides a great opportunity for both local and Chinese sportswear brands – including Li Ning and Anta – to make even more of a dent in Western companies’ market shares.

You might also like: Is Nike’s stock still worth what it’s worth?

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Analyst Take

There’s Just One Brick Left Keeping The Stock Market Standing

Reda Farran, Analyst

When the S&P 500 briefly entered a bear market earlier this month, it was because stock valuations have been cratering.

Hardly surprising, given that the US central bank has been aggressively hiking rates, which have reduced the amount that investors are willing to pay today for future profits.

But the scenario could’ve played out much worse if the single other factor that’s been propping up stocks hadn’t held firm.

The trouble is, there are reasons to believe it might not hold out much longer.

That’s today’s Insight: the one factor holding up the stock market.

Read or listen to the Insight here

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