Investing.com -- Nike (NYSE:NKE) is unlikely to experience a strong turnaround in China in the near term, according to UBS analysts, who expect "slow growth with little margin rebound over the next couple years."
Despite new CEO Elliott Hill’s early efforts to drive change, UBS maintains a Neutral rating on the stock, citing ongoing challenges in the Chinese market.
Following an expert call on Nike’s China business, UBS analysts concluded that "Nike is not likely to experience a strong rebound in China any time soon."
They anticipate "negative revenue growth for the rest of the current fiscal year and flat-to-positive LSD% growth thereafter," with EBIT margins in the Greater China region expected to remain low.
UBS outlined six key obstacles to Nike’s recovery in China. First, the company "needs to bring more product innovation into the market," a process that could take up to three years due to long lead times.
Second, Nike must "reduce excess inventory" and return to full-price selling, which hinges on stronger product innovation.
According to UBS, another challenge is the need to tailor product assortments and marketing strategies more specifically to Chinese consumers.
"Historically, Nike was able to leverage a high percentage of its global product assortment and marketing messages in China," UBS notes. However, they state that as the Chinese market evolves differently from the U.S. and Europe, Nike must adapt accordingly.
Additionally, the company is said to face difficulties in refining its distribution strategy, intense competition from agile domestic brands like Anta, and a "choppy" Chinese consumer spending environment.
Uncertainty surrounding new U.S. tariffs on Chinese imports could further complicate Nike’s investment plans in the region, says the bank.
Given these factors, UBS remains cautious about Nike’s near-term prospects, emphasizing that a meaningful recovery in China is not imminent.