We recently compiled a list of the 10 Footwear Apparel Stocks Affected By China Tariffs. In this article, we are going to take a look at where NIKE Inc. (NYSE:NKE) stands against the other footwear apparel stocks.
Donald Trump’s sweeping tariffs on China, Mexico, and Canada have caused a lot of footwear and apparel stocks to crash. Even though the President paused tariffs on Canadian and Mexican goods for a month, the 10% tariffs on China are still in place.
Fashion brands provide an interesting investment opportunity. Due to their loyal following, they have the ability to raise prices to take care of tariffs. In a similar way, these brands have become quite agile in diversifying their supply chain since the pandemic, so sourcing products from outside China is also a possibility for many. More than these brands, it is the retailers that will get hurt as their value proposition to their customers may get hurt when brands raise prices. However, these retail stocks are not a part of our discussion for now.
In order to come up with our list of 10 stocks affected by Trump’s tariffs on China, we only considered stocks with a market cap of at least $1 billion and a product sourcing mix exposure to China of at least 5%.
A team of trainers and athletes displaying a wide range of athletic and casual footwear.
NIKE Inc. (NYSE:NKE)
NIKE Inc. is a leading developer, designer, marketer, and supplier of athletic equipment, footwear, accessories, apparel, and services. The company supplies its products to athletic specialty stores, department stores, sporting goods stores, footwear stores, and other retail accounts. The company sources 18% of its products from China.
NKE’s Q2 performance indicates that the company is undergoing a tough period. Revenue declined by 8% YoY in the Chinese market. However, this was lower than the analyst expectations of a 10% decline. Gross margins also slightly decreased to 43.6% as compared to the previous year’s same quarter at 44.6%. Despite the above challenges, here are the positives about the company: a 5% decline in operating expenses that can provide the company with a much-needed cushion to expand its marketing budget.
On top of that, the company prioritizes shareholders’ returns as the dividend was increased by 7%, with $1.1 billion spent on share buybacks. Analysts believe that the decline in Chinese market sales is recoverable. The company has constantly earned a high return of over 20% on its investments and that’s mainly because it knows how to deal with changing consumer preferences. Even though NIKE’s stock price dropped notably, with innovative products and solid brand power, it represents a rewarding long-term investment opportunity.
Overall NKE ranks 5th on our list of the footwear apparel stocks affected by China tariffs. While we acknowledge the potential of NKE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NKE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
