Nike slumps on margin warning, drags down other athletic gear makers

© Reuters. A man with Nike bags talks on the phone in front of a Nike store as Black Friday sales begin at The Outlet Shoppes of the Bluegrass in Simpsonville, Kentucky, U.S., November 26, 2021. REUTERS/Jon Cherry

By Deborah Mary Sophia and Medha Singh

(Reuters) -Shares of Nike Inc (NYSE:) tumbled 12% on Friday and rattled those of other athletic gear makers, after the company’s warning of tightening margins fueled concerns of an industry-wide drop in profit due to an inflation-induced hit to consumer sentiment.

Nike on Thursday said it was expecting full-year gross margin to fall 200-250 basis points, as it was grappling with a strengthening dollar and ballooning inventory.

The company, which gets more than half its revenue from outside North America, also doubled its estimates for a hit to annual revenue from the soaring dollar to $4 billion.

“Nike’s promotions and outlook is a bad omen for guidance at Under Armour (NYSE:), Adidas (OTC:), Puma, and others in the athletic space,” Cowen analyst John Kernan said.

Analysts at Piper Sandler called out Nike’s smaller rival Under Armour Inc (NYSE:) in particular, citing the brand’s lack of premium positioning compared with Nike.

The negative update from Nike comes at a time when the retail sector is struggling with a slump in discretionary demand amid higher inflation, setting up for more margin pain in the coming months as companies ramp up discounts.

Nike shares fell to $84.20. If losses hold through the session, it would be Nike’s biggest one-day percentage fall since March 2020 and shave off about $17 billion in market value.

Shares of Under Armour slipped 4.1%, while those of German peers Adidas and Puma skid 5.5% and 6.5%, respectively. Footwear retailer Foot Locker (NYSE:) Inc dropped 4.3%.

“Nike’s sniffle raises risk the group catches a cold … Given Nike’s (update and) plans to aggressively liquidate out-of-season goods over the next two quarters, we see risk that the overall industry becomes much more promotional as a result,” Baird analyst Jonathan Komp said.

The average stock rating of 36 brokerages covering Nike is “buy” and the median price target is $115, down from $130 a month ago.