Nike trimmed sales declines in this key region, and analysts see it as a bullish sign

Published Tue, Mar 22 20228:48 AM EDTUpdated Tue, Mar 22 202210:47 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Declining sales data in a key region was seen as a win in Nike' s latest earnings report, according to Wall Street analysts. Nike reported its fiscal third-quarter earnings Monday, beating expectations on the top and bottom lines. Its shares were up 5% in premarket trading. But one of the most encouraging pieces of data, in Wall Street's view, came in the geographic breakdown. Sales in greater China were down 5% year over year and 8% on a constant currency basis, a smaller decline than feared. The halting recovery from the pandemic in China, along with calls for a boycott last year , have made the apparel giant's performance in the country uncertain in recent quarters. "A key concern for investors coming into Nike's 3Q22 earnings print were Greater China sales, which have been under pressure in recent quarters given continued supply chain challenges and backlash against western brands in the region. Overall, Nike's 3Q results in China surprised to the upside. ... We also note the company saw an increased level of full price selling in the region," Goldman Sachs analyst Kate McShane said in a note to clients. The decline in sales in China was smaller than Nike reported in its second quarter. The company's Jordan brand saw positive sales growth in the region, Nike management said during a conference call. Overall, the third quarter showed "a strong sequential acceleration across Nike's business — and with many of the biggest 'wall of worry' macro components improving in the quarter," Credit Suisse analyst Michael Binetti said in a note to clients. "China was by far the most important data point, and China accelerated more than expected (to -8% YOY from -24% in F2Q, we expected -14%), and for the reasons Nike said it would (improving inventory ... suggesting headwinds from consumer boycotts are abating)." However, Nike may not be out of the woods just yet. The company declined to give an outlook for its upcoming fiscal year amid the issues in the global economy. "Despite recent Covid-related lockdowns, management expects 4Q Greater China revenue to improve q/q, driven by strong demand and marketplace strategy momentum," Morgan Stanley's Kimberly Greenberger wrote. "However, management and we are continuing to monitor lockdowns and Covid-related restrictions as the situation remains dynamic. Looking ahead, the key question remains how quickly can NKE return to its low-mid-teens long-term revenue growth target in the region." Prior to the report, shares of Nike were down nearly 22% year to date, bringing its market value to $205.87 billion. — CNBC's Michael Bloom contributed to this report.

Pedestrians carrying Nike and Allbirds shopping bags in the SoHo neighborhood of New York, on Sunday, Oct. 24, 2021.

Nina Westervelt | Bloomberg | Getty Images

Declining sales data in a key region was seen as a win in Nike's latest earnings report, according to Wall Street analysts.