Nike ($NKE) suffers from a slowdown in China

This was a challenging quarter for Nike. After the results were announced, the stock briefly jumped before it plunged 7%. That is a big drop for a $200 billion company.

This is what the investors did not like.

Business in China was heavily obstructed by lockdowns. Why would consumers need shoes and clothes if they were stuck at home? As a result, that geographic segment reported a 19% drop in sales when compared to the same quarter last year. Furthermore, business in the US declined 5% and the Converse brand dipped 1%.

However, that is not everything that went wrong. They are also battling inflation resulting in increased costs of materials. Supply chain issues are not helping either. Customers, on average, are waiting two weeks longer than in pre-pandemic times. It gets worse - the company is paying about five times the rate it paid pre-pandemic to put products in a container on a boat and move it from Asia to the U.S.

Naturally, investors felt like it is time to sell the stock. Profitability could suffer under these conditions and push the stock price lower.

If you believe these issues will not last this could be an interesting opportunity. Nike is in the middle of a strategy shift, as the company sells more merchandise directly to shoppers and trims back the amount sold by wholesale partners such as Foot Locker. By cutting out the “middle man”, they get to retain a bigger percentage of the profits, which would eventually affect their earnings. As we all know, earnings drive stock prices.

Is Nike a good long-term investment?

To Your Financial Freedom,