Nike's comments on China, Russia, and supply chain woes are being closely monitored by Wall Street.

• Nike's post-earnings comments on Monday could signal how other retailers are experiencing the effects of a war overseas, high oil prices, and inflationary pressures.
• The sneaker giant will release its fiscal third quarter results after the market closes, facing global unrest and supply chain disruptions.
• The U.S. may impose serious consequences on Nike if Beijing assists Russia in its war against Ukraine, and Western brands continue to face boycotts in Asia.

The retail industry may face challenges due to the war in Ukraine, high oil prices, and inflationary pressures, as indicated by the post-earnings comments of a retailer on Monday.

Nike will reveal its fiscal third quarter results after the market closes, while its exposure to China is being closely scrutinized due to the possibility of US sanctions against Beijing if it supports Russia in its war against Ukraine, and ongoing boycotts of Western brands in Asia.

Nike shares have declined in recent weeks as investors expect the retailer to face losses from certain risks. The stock closed at $131.24 on Friday, down 21% year to date, compared to the S&P 500's decline of 6%. Despite this, some analysts predict that the shares may drop even more.

According to a survey of analysts by Refinitiv, it is predicted that Nike will report 2022 fiscal third-quarter revenue of $10.6 billion, along with earnings of 71 cents per share.

Some of the key topics that analysts are anticipating Nike to address on Monday include:

Outlook poised to disappoint

If Nike provides fourth-quarter and initial fiscal 2023 outlooks, UBS analyst Jay Sole believes they will disappoint investors.

According to Sole, Nike's China business is not recovering as quickly as anticipated, and the market has underestimated the impact of global supply chain challenges, Nike's temporary suspension of business in Russia, higher oil prices, and a rising U.S. dollar, which will put pressure on Nike's profit forecast.

Nike has temporarily halted its operations in Russia due to the rapidly changing circumstances and operational difficulties. The duration of this pause is currently uncertain. The company has approximately 116 retail stores in Russia, which account for less than 2% of its overall sales, according to analysts' estimates.

Sole stated that Nike's third-quarter report may cause the market to believe that the company's earnings rebound will occur later than previously anticipated.

Refinitiv's polled analysts predict Nike's Q4 sales will increase by 2.3% compared to the previous year. For FY 2023, Wall Street anticipates Nike's sales will be $53 billion, up 13% from the prior year.

China risk

Nike's biggest and long-term challenge will be China, which contributed 19% of its sales in fiscal 2021, ending on May 31, according to Barclays analyst Adrienne Yih.

In early 2021, sales at brands such as Nike and Adidas decreased in China due to a boycott by Chinese citizens of Western brands. This was in response to accusations of forced labor in the cotton industry around Xinjiang, where Uyghur Muslims are a significant minority group. While the Chinese government denied these allegations, brands like Nike pledged not to use Xinjiang cotton.

In late December, Nike's Chief Financial Officer Matt Friend informed analysts on a conference call that the company was observing "encouraging signs" in China. Despite this, he predicted that fiscal 2022 would be a year of recovery in the region. Later in the call, Nike's CEO John Donahoe stated that the company was taking a long-term perspective in China and developing new products that catered to the preferences of the Chinese consumer.

Kimberly Greenberger, a Morgan Stanley analyst, stated that Nike may not witness a positive catalyst until June or beyond.

Nike and its peers face another risk due to the recent renewed Covid lockdowns in China, as flagged by her.

Greenberger wrote in a note to clients that China has been a focus point for investors in the past year due to boycotts and inventory challenges, with investors discussing whether underperformance is demand or supply driven. It is unlikely that third-quarter results will resolve these ongoing debates.

Citi retail analyst Paul Lejuez stated that his team surveyed 1,000 Chinese consumers earlier this month to compare Nike with other brands, including Chinese ones. The survey found that Chinese consumers consider Chinese sportswear brands, such as Li Ning, to be as good or better than Western brands. However, Lejuez noted that Nike and Adidas are doing well in China.

Wholesale distribution plans

Nike's focus on direct-to-consumer sales is attracting attention from analysts and investors, as the company aims to increase profits and strengthen its brand image by reducing its reliance on wholesale partners.

In late February, one of Nike's largest vendor partners announced that its sales mix from Nike will decrease from 65% in the fourth quarter of 2021 to 55% in the fourth quarter of 2022, with a possibility of it dropping even further.

Nike could experience a loss of between $600 million and $800 million in wholesale revenue in fiscal 2023, according to Credit Suisse analysts.

Michael Binetti, a Credit Suisse analyst, stated that although we did not anticipate Nike's rapid shift to disrupt Foot Locker's cash flows so significantly, we comprehend why Nike would want those sales to be recorded through its own channels.

Nike's direct-to-consumer revenue accounted for approximately 41% of its overall business as of Nov. 30. Investors will be interested in learning more about how this figure may continue to increase and which partners Nike will continue to rely on the most.