Nike has key advantage over upstart running shoe brands: analyst

Nike (NKE) reported quarterly results after the bell on Monday, beating expectations despite the effects of Russia’s invasion of Ukraine and pandemic-related supply chain issues.

Additionally, according to an analyst, the Oregon-based footwear giant has a clear advantage with consumers over running shoe rivals like Swiss-based On and French-based Hoka One One.

“95% of consumers who buy Nike running shoes don’t use them for running, they use them for more aesthetic, casual… day-to-day purposes,” Camilo Lyon, chief executive of BTIG, told Yahoo Finance Live (video above). “When we talk about We… [or] Hoka, we’re talking about more technical running shoes.”

A staff member organizes Roger Federer’s signed Air Jordans Tournament from the 2014 US Open during a photo call for ‘The Roger Federer Collection: Sold to benefit the RF Foundation’ party and online sale at home Christie’s auction in London, UK on June 21, 2021 (Photo by Wiktor Szymanowicz/Anadolu Agency via Getty Images)

As for the headwinds Nike faces, Lyon noted that supply chains remain problematic.

“The situation we find ourselves in with Nike and a lot of the strongest brands today is not a demand problem,” Lyon said. “It’s really more of a supply issue or it has been for two years.”

He added that “we have new pressures on the consumer that we’re all trying to determine for how long, like inflationary pressures, rising rates and…rising prices just about everywhere, which Nike is going to do in the second half of this year.”

Nike, the world’s largest sportswear company, suffered two months of no unit production in Vietnam when two of its shoe suppliers stop production in July. The production shutdown has impacted inventory and sales in regions like Greater China, a region now facing new COVID-19 related lockdowns.

“COVID has exacerbated the issues from a production perspective, but … we’re talking about Nike being a battleship and someone like On or Hoka being speedboats,” Lyons said. “So the time it takes to turn these companies around is very different from a production perspective.”

Nike and China

The impact of the latest shutdowns in China could continue to hamper global supply chain recovery as U.S. companies post a financial outlook that bets on recovery across Asia.

The average number of new infections reported each day in mainland China has increased by more than 1,900 in the past 3 weeks, 42% from its previous peak, according to Reuters COVID-19 tracker.

Last quarter, Nike reported revenue of $11.26 billion for the second quarter, up 1% from a year earlier, but those gains were offset by supply chain issues. The discussion remains if Nike will explore other countries to increase production.

“Diversification has been happening for years now, and it has come at the behest of its manufacturing partners, many of whom are Chinese companies that have diversified outside of China, largely due to labor pressures. work that have been quite systemic and structural in nature for the past five years or so,” explained Lyon.

People line up to take a PCR test during a mass testing campaign on March 21, 2022 outside the Beijing Workers' Stadium in Beijing, China.  (Photo by Andrea Verdelli/Getty Images)

People line up to take a PCR test during a mass testing campaign on March 21, 2022 outside the Beijing Workers’ Stadium in Beijing, China. (Photo by Andrea Verdelli/Getty Images)

While it’s impossible to predict what will happen in the next few months, Nike can at least count on the continued boom in athleisure. During the pandemic, athleisure became the global style trend in the fashion game as consumers sought comfortable, fashionable clothing that suited all paces and locations.

Capturing consumer interest in wellness and fashion, Lululemon (LULU), known for its leggings and sports bras, has ventured into the world of sneakers with its very first running shoe for women, called Blissfeel, which will be available this week.

“We don’t really dismiss the competitive environment, but we don’t care either because Nike has this brand halo above that casts a wider net than other competitors around it,” Lyon said.

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv

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