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China has some companies worried. Not Nike

Signs that the world economy is starting to weaken have alarmed investors. Some global companies have warned...

Posted: Dec 21, 2018 8:14 AM
Updated: Dec 21, 2018 8:14 AM

Signs that the world economy is starting to weaken have alarmed investors. Some global companies have warned of a slowdown in China. But things are looking good for Nike.

Nike's sales surged 10% in the three months that ended November 30 from the same quarter a year ago, the company said Thursday. That included a 26% increase in China, thanks to sales from the country's Black Friday-like Singles Day and demand for sneakers like Air Jordan.

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Nike (NKE) is considered a bellwether of the broader economy. Its stock has fallen 18% over the last three months during the wider market slide. Shares rallied 7% after hours.

Investors are worried about the possibility of Chinese tariffs on clothing and sneakers, which would strike at Nike, the world's largest sportswear company.

The Chinese economy has weakened lately, in part from the trade war between Beijing and Washington. The dollar has strengthened against the yuan, which makes US products more expensive for Chinese consumers. Last month, Tiffany said Chinese tourists were spending less on jewelery.

But Nike has bucked the trend, due in part to its aggressive digital growth.

"A key part of our strategy to win in this environment is to double down on digital," CEO Mark Parker said.

Nike has reinvented itself for the digital era. It wants to sell more shoes and clothes directly to consumers, instead of through retailers. These sales carry higher margins and also give Nike total control over how its products are displayed and marketed.

The company has taken several steps toward its goal, including narrowing its focus to a dozen major cities, cutting out struggling retail partners and relaunching its membership app, NikePlus.

In North America, Nike's biggest market, sales increased 9% from the same time last year.

The results show there were no side effects from its decision to make Colin Kaepernick a face of its "Just Do It" anniversary campaign in September.

The former San Francisco 49ers quarterback, who has not played in the NFL since the 2016 season, sparked a firestorm when he sat and later knelt during the National Anthem to protest police brutality and racial injustice. President Donald Trump even rebuked Nike after the campaign launched, asking, "What was Nike thinking?" on Twitter.

Nike's decision was a bet on its core customers: Younger Americans in big cities. More people aged 18 to 34 supported the Kaepernick ad than those who opposed it, according to an SSRS Omnibus poll provided exclusively to CNN in September.

Nike said on Thursday that it sees more opportunities to sell mid-priced sneakers, instead of its usual pricey basketball shoes. It will also launch yoga clothing for men for the first time to tap into the athleisure market. Gap recently made a similar move. It launched Hill City in September after success with its women's Athleta brand.

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