How Nike is winning the US-China trade war

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Shares of Nike Inc. (NKE) are beating the broader market despite the ongoing trade war between the United States and China. Shares of the sports footwear and apparel maker rose 22% in 2019, driven by continued popularity among Chinese consumers and a supply chain more sheltered from customs duties than ten years ago.

Key points to remember

  • Nike outperforms despite trade war.
  • Last quarter sales driven by China.
  • Nike’s supply chain is now more geographically diverse.
  • Only 10% of Nike products produced in China are exported to the United States

What this means for investors

While the respective governments of the United States and China may disagree, Chinese consumers have not given up their loyalty to the Nike brand. In its latest quarterly earnings report, Nike announced better-than-expected sales, largely driven by China. Greater China revenue grew 22%, more than three times faster than the company’s overall 7% sales gain in the last quarter, according to the the wall street journal.

Nike’s revenue from US consumers is also relatively shielded from the trade war compared to a decade ago, as they manufacture fewer products in China. Nike has been constantly evolving production out of China as wages have risen steadily in the world’s second-largest economy. China was once the company’s first shoe production site. Now it’s Vietnam.

Of course, there is still a significant amount of Nike products made in Chinese factories. For fiscal year 2019, Nike’s contract factories in China produced about 23% of its footwear and about 27% of its apparel. But only 10% of those goods are actually exported to the United States, meaning only a fraction of that Chinese production is subject to U.S. tariffs, according to Susquehanna analyst Sam Poser, per Barrons.

Look forward

The current quarter, however, could be more difficult, as the latest round of tariffs imposed at the start of the month is aimed more at consumer goods than the previous rounds. But Nike chief financial officer Andrew Campion believes the company has some flexibility to make adjustments. “We’re a big believer in free and fair trade, and that’s because pricing has always been part of the financial equation at Nike,” he told the Log. “So given a bit of time, we have a lot of levers we can work with, from sourcing to other levers.”

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