Nike (NKE) had a strong quarter but still faces challenges in China.
"The [direct-to-consumer] business in China was down, and sales in China still have issues," Williams Trading Senior Equity Analyst Sam Poser told Yahoo Finance this week (video above). "Given the recent closures, we'd be looking at that very carefully."
The footwear giant's China business is still in recovery mode after pandemic-related supply chain issues and a boycott among Chinese consumers toward Western brands caused Nike sales to take a hit last year.
The region — which has also seen activity constrained by the country's zero policy on COVID — is experiencing another surge in coronavirus cases, prompting Chinese manufacturers to prepare highly isolated "bubbles" that allow them to continue to run business.
Nike's fourth-quarter revenue for Greater China was $2.16 billion, falling just over 5% year-over-year. But Poser remains focused on "what's happening next, especially out of China, which was slightly better than what we anticipated, but not great."
Nike's overall positive performance involved strong results from its digital and direct-to-consumer (DTC) businesses: The company's direct sales were $4.6 billion, up 15% from a reported basis and up 17% on a currency-neutral basis.
But those gains were offset by the wholesale and digital decline in Greater China.
The swoosh brand has moved more aggressively toward a DTC strategy — which led it to cut ties with DSW, Urban Outfitters, Shoe Show, and more retailers.
"The mix of business to DTC really does help them fairly dramatically because it takes a lot of pressure off the supply chain for every one pair they sell themselves," Poser added. "They basically have to sell two pairs to a wholesale account. It appears as if they did a bit of maneuvering."
During the post-earnings conference call, CEO John Donahoe cleared the air about the "confusion" around the partnership with retailer Foot Locker.
"To be crystal clear: Foot Locker always has been, and always will be a large and important partner of Nike's and that'll continue to be the case," Donahoe said. "They'll have a very distinct role in our marketplace strategy as a wholesaler with particular focus on the culture of basketball on the sneaker culture and on kids, which is a really big and important opportunity for us."
UBS Analyst Jay Sole currently has a 'Buy' rating with a $173 price target.
"Nike will be a long-term outperformer, in our view," Sole wrote in a note to clients following the earnings report. "The company's investments in product innovation, supply chain speed, and digital are unlocking what is likely a multiyear period of above-average growth. We forecast a 16% 4-yr. EPS [Compound Annual Growth Rate] CAGR. We believe this growth rate, plus Nike's enduring global brand relevance, justify a 33x [price to earnings ratio] P/E."
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv
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