Nike expected to return to profit as online sales, demand from China pick up

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CHICAGO (Reuters) - Strong online sales and demand from Chinese shoppers and students heading back to school are expected to have helped Nike NKE.N swing back to a profit in the first quarter, a sequential improvement from the surprise loss it posted in July, according to Refinitiv.

Shares in Nike were up about 1.8% in afternoon trading, ahead of the company’s earnings report after the market closes on Tuesday.

With malls and department stores like J.C. Penney JCP.N shutting shops due to COVID-19 lockdowns, people turned to e-commerce, buying significantly more products directly from Nike's website. In the fiscal fourth quarter, Nike reported a 75% rise in online sales and Wall Street analysts expect this to continue - at least nine have raised their price targets on the stock in the last two weeks.

In the first quarter, 12% of all footwear on featured new types of sneakers and shoes, versus 10% in the prior quarter, according to apparel data firm StyleSage. The company sold out 17% of all footwear this year, compared with 6% in the fourth quarter, showing improvements in customer demand and investment in new items online. Online sales for Nike clothing show a similar trend.

E-commerce sales are now nearly a third of Nike’s total revenue – a goal Nike had previously set for 2023. Nike’s first-quarter adjusted sales in China are also expected to have grown by more than 10% as official lockdowns there all but ended.

Particularly in North America, sales in the global athletic footwear and apparel industry have picked up, and Nike will get a boost from the new back-to-school dynamic, said Wedbush analyst Christopher Svezia.

Portland, Oregon-based Nike is expected to post a net profit of $729 million in the most recent quarter, versus a loss of $790 million in the fourth quarter, according to Refinitiv.

To save costs and target investment online this year, the company said in July it would cut corporate jobs starting Oct. 1 and end nine major retail contracts, including deals with department store Dillard's and AMZN.O shoe retailer Zappos. Nike in July scrapped plans to open a major shoe plant in Arizona in favor of investments elsewhere.

The company has invested this year in marketing itself as a supporter of high-profile social and political movements like Black Lives Matter and Time to Vote, and launched a new maternity line and several inclusive ad campaigns.

Reporting by Richa Naidu and Aishwarya Venugopal; Editing by Anna Driver, Nick Zieminski and Tom Brown