Published - Mar 21, 2022 @ 4:21 PM (EET)

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After the market closes Monday, Nike (NYSE:NKE) will report its fiscal third-quarter results following its disappointing earnings report for Q2.  

As the footwear giant covers the critical holiday shopping season, the stakes are higher for this announcement while rising COVID-19 cases in China, the Russia-Ukraine crisis, and lingering supply issues continue to impact its 2022 sales negatively.

Analysts have recently been cutting their estimates and lowering their price targets amid worries that revenue estimates look high and expect tepid 2023 guidance, and with good reason.  

Previously, the Trader column warned of Covid and nationalism creating headwinds for Nike and China. The nation's turn to "common prosperity" has also negatively impacted both domestic stocks and those that look to China for growth.

NIKE CHALLENGES

In fiscal 2020, Nike's sales fell 4.4% to $37.4 billion when several of its wholesale partners were forced to close their doors to in-person shoppers.  

However, sales rebounded in 2021, rising 19.1% year over year, with consumer demand normalizing to pre-pandemic levels and quicker than expected. As a result, Nike, among many other businesses, has struggled to scale production and has not been able to produce enough to serve total demand. 

In the most recent fiscal quarter that ended November 30, the insufficient inventory has resulted in Nike's sales falling, primarily in markets outside of the U.S. and Europe.  

Sales in China fell by 20% year over year and by 8% in the Asia Pacific & Latin America region.

According to Wells Fargo analyst Kate Fitzsimons, Europe could also be a problem in the coming quarters since rising natural-gas prices are likely to result in a more subdued consumer in Europe, where Nike gets about a quarter of its sales.

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A POSITIVE TURN

Though it's still unclear how much risk the company is taking on by walking away from its wholesale selling strategy and ongoing supply-chain challenges, Nike's profitability rose last quarter amid higher selling prices and a shift toward e-commerce selling that offset rising expenses.

Monday's results will be a great indication of whether these positive trends were enough to keep boosting Nike's earnings while it continues to dominate the global landscape around athletic apparel and athleisure. 

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