Retailers may benefit from China's recovery, as indicated by Nike's positive outlook.

• The possibility of recovery for Nike in China could benefit other retailers with significant operations in the region, as they navigate the ongoing pandemic and global instability.
• Despite anticipations, Nike has demonstrated better handling of broader macroeconomic challenges, including supply chain backlogs, than many expected.
• The biggest obstacle to Nike's stock has been China, but now the region is "progressing positively," according to one analyst.

The prospect of recovery in China could benefit other retailers with significant operations in the region, as they grapple with the aftermath of the pandemic and geopolitical instability.

Nike's China business is improving despite recent backlash against Western brands and a shortage of merchandise in the marketplace. Despite broader macroeconomic challenges, including ongoing supply chain backlogs, Nike is handling these challenges better than many had anticipated. Prior to Monday's report, Nike shares had fallen 22% this year.

The success of Nike's results could positively impact other athletic apparel retailers like Adidas and Puma, according to analysts. However, Nike has not yet released its outlook for the upcoming fiscal year, which starts in June, due to several unpredictable factors that may change before the company reports its fourth-quarter results. Therefore, there is still a possibility for trends to shift in a different direction.

Despite analysts anticipating a 12% year-over-year drop in sales for the three-month period ended Feb. 28, Nike reported a 8% decline, which was an improvement from the 24% drop in the prior quarter. Notably, China has been Nike's most profitable market.

Nike's biggest stock overhang, which has been China, is now moving in the right direction, according to Wedbush analyst Tom Nikic in a note to clients.

"We believe Nike is one of the highest-quality, highest-visibility growth stories in our space due to its significant brand momentum and long-term earnings power driven by the direct-to-consumer initiative," he stated.

Nike's management team disclosed during a post-earnings call with analysts the measures the company has implemented to attract international customers. Specifically, Nike has collaborated with two Chinese retail distributors, Top Sports and Pou Sheng, to expand its presence in the region. Additionally, the company highlighted a recent brand campaign linked to the Beijing Olympics as a contributing factor to its success overseas.

We're optimistic about our ability to return to a long-term growth algorithm, as we're encouraged by the current momentum," said Chief Financial Officer Matthew Friend. "However, in the short-term, we're closely monitoring the Covid-related lockdowns in the marketplace and the impact on the fourth quarter is uncertain. Nonetheless, it feels different.

Nike anticipates sequential improvement in China in the fiscal fourth quarter, despite ongoing monitoring of Covid cases and lockdowns.

Omar Saad, an Evercore ISI analyst, believes that Nike's performance in China this quarter marks a "turning corner" for the company. In a note to clients, he stated that the strong performance alleviates concerns that Covid significantly derailed China demand. Additionally, Saad believes that this quarter's performance puts to rest any concerns that a shift in demand towards domestic brands would significantly hinder Nike's growth.

Daniela Nedialkova, an Atlantic Equities analyst, expressed a similar view in a research note, stating that Nike's third-quarter report expectations had been decreasing recently, causing the stock to decline, particularly due to heightened concerns about China.

Despite concerns about losing market share to domestic brands due to supply chain issues and inventory shortages, Nike has reassured investors that it will still meet its long-term targets, as stated last year, according to Nedialkova.

Nike predicted sales growth of mid-single-digits for its current fiscal year, while analysts had forecast revenue growth of 5.3% for the prior 12-month period.

In North America, Nike is facing a complex environment while attempting to regain growth.

Despite strong consumer demand for its products, Nike faces challenges with its supply chain, particularly in North America, where transportation times are longer than in other regions. It takes six weeks longer to receive goods in North America compared to pre-pandemic levels, and two weeks longer than the same period last year.

Nike has accelerated its purchasing schedule to ensure sufficient merchandise for the upcoming back-to-school rush, as advised by Friend in preparation for the fall season.

Our confidence as we look long-term remains unchanged," said CEO John Donahoe. "We are staying on the offense.