Foot Locker’s earnings and China’s economic performance contribute to the decline of Nike stock (NKE)

Amidst disappointing quarterly results from Foot Locker and a decline in consumer interest in the footwear sector, Nike’s stock has experienced a 10-day losing streak. This consecutive drop is the longest in Nike’s history as a publicly traded company since its initial public offering (IPO) in 1980. As the company prepares to report its earnings next month, it faces pressure in its core business of footwear, which has been underperforming for several months.

Millennial shoppers, who are anticipating the resumption of student loan payments, have reduced their spending on clothing and shoes while prioritizing services and experiences. This shift in consumer behavior has prompted an increasing selectivity in spending, as evidenced by the statement of Rick Patel, a retail analyst for Raymond James. He noted that the back half demand is also uncertain due to the imminent resumption of student loan payments and inflationary pressures.

Furthermore, comments from department stores, athletic apparel retailers, and Nike’s key wholesale partners, Foot Locker and Dick’s Sporting Goods, regarding sluggish activewear sales could be negatively impacting the company’s stock. Foot Locker recently reported declining sales for the quarter and lowered its outlook for the second time this year. The company attributes these poor results to a slowdown in consumer spending, particularly among its lower- to middle-income target customer base.

In contrast, Dick’s Sporting Goods, which experienced its first top- and bottom-line misses in three years, still observes strong footwear sales. This positive performance in the category stands out in an otherwise disappointing report. However, Nike’s stock may also be affected by China’s uncertain economic recovery. Approximately one-third of the company’s business is in China, so any slowdown in the Chinese economy could have a significant impact on Nike’s performance.

Analysts have expressed concerns about China’s negative macro data points, including a modest 2.5% year-over-year increase in retail sales and a rise in youth unemployment. While Nike previously reported strong sales growth in China, it remains unclear whether this growth will continue and what impact it will have on the company’s upcoming earnings report.