UBS says Nike's China discount cuts benefit 3 domestic sportswear peers

UBS said Nike's discount cuts and online channel restructuring in China will benefit domestic sportswear peers Li Ning, Anta Sports and Xtep.

"Nike is adopting a more proactive inventory sell-in management strategy to improve the market ecosystem in China," UBS analysts wrote in a report dated July 3.

Nike's Greater China sales fell 12% year-over-year in the fiscal fourth quarter ended May, outperforming the broker's expectations. The company's average retail discounts declined during the March-to-May period as it sought to strengthen its premium brand positioning. Nike said the online full-price sell-through rate is recovering after two quarters of reduced promotions.

The strategic shift creates a healthier promotional environment for Chinese sportswear companies, supporting market share gains for Li Ning, Anta Sports and Xtep, UBS said. For Nike's distribution partners, the outlook is more uncertain.

UBS outlined three possible directions for Nike's online channel strategy in China: retaining authorized retailers' livestreaming and WeChat mini-program operations while terminating authorization on e-commerce platforms such as Tmall; revoking online operating authorization for small and medium-sized distributors while keeping major distributors; or fully terminating online distribution authorization.

Based on management comments during Nike's earnings conference call, the broker said the likelihood of fully terminating online authorization is relatively low, as management emphasized the importance of strong local partnerships. That interpretation is positive for TOPSPORTS (06110.HK), which has fallen more than 30% since June 22 on concerns Nike may end its online sales authorization.

Nike shares closed at $44.09 on July 2, up 2.4%, after the company reported Q4 earnings on June 30. The company posted revenue of $12.6 billion, down 1% on a reported basis, with gross margin expanding 890 basis points to 49.2%, including a 900-basis-point benefit from tariff recovery. Excluding that benefit, earnings per share came in at $0.20.

The analyst call suggests Nike's China strategy pivot will reshape competitive dynamics in the world's largest sportswear market. Investors will watch for further channel restructuring announcements from Nike and any market share data from Li Ning, Anta and Xtep in the coming quarters.

This article is for informational purposes only and does not constitute investment advice.