‘We are at the beginning of a sneaker supercycle’

Shares of Nike (NKE) have taken a hit over the past year, but one analyst believes the sneaker giant’s inventory woes may be easing.

“We are at the beginning of a sneaker supercycle,” said Omar Saad, managing director of Evercore ISI on Yahoo Finance Live (video above). “People wear more sneakers. They wear more sneakers. Their feet are absolutely used to the comfort that sneakers and other comfortable footwear provide during COVID and they are hesitant to go back to wearing uncomfortable dress shoes every day just to special occasions .”

And according to Saad, Nike “is the company best positioned to take advantage of this huge sneaker supercycle.”

For the past two decades, Nike stock has consistently outperformed the S&P 500 and has been something of a benchmark for the retail industry. However, shares of the garment giant have plunged 45% so far this year, well below the 21% drop in the S&P.

While a boost in demand could give Nike a needed boost, it remains to be seen whether it can overcome supply pressures from the inventory-ridden retail industry.

“We think there is going to be a very, very difficult holiday [season]and some of this is really due to forward buying behavior in the wholesale channel by 2023,” Barclays CEO Adrienne Yih told Yahoo Finance. “Nike still has about 55% in the wholesale channel even though they are making great strides. in moving to [direct-to-consumer]. So that’s the crux of the species in the short and medium term.”

Stylist Jada Adkins is seen wearing black and white Nike SB Dunks on April 21, 2021 in New York City. (Photo by Arthur Holmes/Getty Images)

Nike’s performance this holiday season may be in the hands of its biggest names. The latest shoe in LeBron James’ exclusive collection, the LeBron XX, is expected to launch just before the start of the NBA season. And in December, a cyclical barrage of retro Jordan Brand merchandise will be released, prompting fans to brave the cold weather and camp outside stores in years past.

‘Uncertain time period’ in China

Beyond calculating inventory, sneaker brands have been navigating a hesitant reopening in China, a key region contributing to sales growth.

Nike’s sales in Greater China fell short of estimates in the latest quarter as COVID-19 lockdowns continued to weigh on the business.

“In the fourth quarter, revenue was down 20% on a currency-neutral basis and EBIT was down 55% as reported,” Nike CFO Matt Friend said on the fourth-quarter earnings call in June. . “This follows the region’s most widespread COVID disruption since 2020, affecting more than 100 cities and more than 60% of our business.”

Workers install a Nike logo lamp outside the Wukesong Arena in Beijing, China, August 28, 2019. Picture taken August 28, 2019. REUTERS/Tingshu Wang

Workers install a Nike logo lamp outside the Wukesong Arena in Beijing, China, August 28, 2019. Picture taken August 28, 2019. REUTERS/Tingshu Wang

The decline in revenue could be “a short- and medium-term transitory COVID issue,” Yih said, but it could also be early evidence of a consumer preference for domestic brands in China.

Nike and other brands targeting expansion in China, such as Adidas (ADDYY), Under Armor (UA), and Lululemon (LULU), have faced increased competition from domestic brands such as Li-Ning and Anta, which have experienced a revenue growth and increased market share.

“If you look at their year-on-year numbers for the first half, Li-Ning is up 22%,” Yih said. “Anta was taking a 14% share of the market. You compare it to Adidas, 35% less, and then for the first half of the year that we know of, Nike, 12% less.” It’s kind of an uncertain time period.”

Brad Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.

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