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Tariffs could give Nike a leg up over competitors, analyst says

Nike said following Thursday’s earnings report that tensions with China haven’t hurt its business in that country. The athletic shoe giant reported global sales increased 4% last quarter, with sales in Greater China rising 22%.

If the U.S.-China trade war continues, with increased tariffs on consumer goods, Simeon Siegel, Nomura senior equity analyst, told Yahoo Finance’s On the Move, Nike could have a competitive advantage over rivals. Because of its size, consistent growth and hot shoe releases, Nike has pricing power, he said.

“Nike will be best situated to pass on [price increases] — or more interestingly, they’ll be best situated to weather the storm,” said Siegel. “And perhaps what it does is hurt the competition and clears the deck.”

The storm, so to speak, could be severe for apparel and footwear manufacturers as well as retailers in the U.S. “Across the board, [increased tariffs] will hurt the entire sector if it’s sustainable and hurt is a very nice adjective — cataclysmic, catastrophic — pick big words,” Siegel said.

He pointed to some of Nike’s premium, flagship products as a source of the company’s strength, and a reason for its pricing power, should tariffs on Chinese imports increase by 25%.

Los Angeles Lakers forward LeBron James (23) in his Nike Lebron shoes in the second half of an NBA basketball game Tuesday, Nov. 27, 2018, in Denver. The Nuggets won 117-85. (AP Photo/David Zalubowski)

“They can drop a LeBron shoe that will be $350. That is not going to be what drives $35 billion worth of revenues. But because of that premium shoe, they can then sell $60 shoes to a lot of people. That $60 shoe becomes $75, people still want to feel like they’re LeBron,” he said.

Other analysts pointed to Nike’s leadership position in the global market. Credit Suisse analysts who cover European footwear companies said that while Adidas is still the leader in China, that lead “must now be narrowing.”

Globally, “the gap between Nike and Adidas performance is stark given the recent lack of brand momentum for Adidas,” analysts led by Szilvia Bor wrote in reaction to Nike earnings.

Nike shares rose a quarter of a percent following its earnings report. Shares have gained 13% this year, compared with 16% for the S&P 500.

Julie Hyman is the co-anchor of On the Move on Yahoo Finance.

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