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The analysts, who reiterated a Neutral rating and $135 price target on Nike shares, explained that with China’s reopening “such a critical part of the Nike catalyst path,” Taobao/Tmall (T/T) trends can provide valuable insights into brand momentum in the China e-commerce channel.
Taobao and Tmall are two popular online shopping platforms in China, both owned by Alibaba Group (NYSE:BABA).
“NKE sportswear and footwear sales on Taobao and Tmall (includes both Nike and Jordan brands) increased 7% y/y in April, compared to the sportswear industry up 13%,” the analysts wrote.
“We estimate Taobao and Tmall represent roughly half of online sales for major Chinese domestic brands.” In addition, the analysts state that Nike footwear sales were up 12% in April, while sportswear sales were down 7%.
“Given the reopening dynamics in China over the last several months, we expect in-store shopping has picked up, and note upside from store sales is not reflected in this data. Pou Sheng (China’s second-largest sportswear retailer, mostly offline) recently reported retail sales +53% y/y in Apr (Mar +30%).”
BofA said the China bull case implies a 10% EPS upside for Nike, and they model Greater China segment sales growth of 15% ccy in 4Q23. “Recent commentary from other retailers exposed to China, gives us confidence that this is achievable, with some potential for upside,” the analysts wrote.
“For FY24, we estimate 11% ccy sales and 35.9% segment EBIT margins. For our bull case scenario, we assume China sales grow 30% y/y (double the growth rate of consensus expectations) and Greater China segment margins return to peak levels of 39.1%, which were last reported on annual basis in FY21. This scenario implies 10% upside to our FY24 EPS for NKE.”
