Daily Brief: Between China’s Lockdowns And Its Own Supply Issues, Nike Didn’t Really Do It Last Quarter

Daily Brief: Between China’s Lockdowns And Its Own Supply Issues, Nike Didn’t Really Do It Last Quarter

over 1 year ago3 mins

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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%.

Nike stock

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. 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.

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US Banks Are Returning Even More Cash To Shareholders

US banks image

A group of US banks announced plans this week to return even more cash to shareholders in 2022.

What does this mean?

Every year, the Federal Reserve (the Fed) implements a stress test on US banks to make sure they have enough money to deal with an economic meltdown and its potential consequences. This year’s test, for example, imagined that US unemployment hit 10%, the stock market fell by 55%, and the economy shrank by 3.5% from the end of last year. Banks then use the results of that test to work out how much they can afford to give to investors in the form of share buybacks and dividends.

Stress tests increase capital requirements

Quite a lot, it turns out. All of the lenders passed the test with flying colors, which encouraged a selection of them to up their payouts. In fact, analysts now think US banks will return as much as $80 billion to shareholders this year.

Why should I care?

The bigger picture: This is getting too real.

Some banks seem more cautious about the state of the economy, with the likes of JPMorgan and Citigroup keeping payouts as they are. And it might be a smart move when you consider that the terms of the test were announced in February, before US inflation hit a 40-year high and the Fed started hiking interest rates. These scenarios, then, suddenly seem less like the extreme end of the spectrum and more like a plausible vision of the future.

Payouts rise
Source: American Banker

Zooming out: Try harder, Goldman.

Goldman Sachs is one of the banks that boosted payouts, but it has more to do to get investors on side: the firm projected this week that its fledgling consumer business will lose $1.2 billion this year. That matters because analysts only expect investors to give Goldman’s stock a higher valuation if it builds out a more diversified business – one that can handle any slowdowns in its core trading and banking businesses.

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