Must read: retailer shares, UK GDP and retail sales, Nike stock slumps

GLOBAL MARKETS

European markets have opened lower with JD Sports Fashion (LSE:JD.), Frasers Group (LSE:FRAS) and B&M European Value Retail SA (LSE:BME) weighing on the FTSE 100 after Nike’s earnings sent shares plunging double digits after hours. 

Overnight, Japan’s inflation rate dropped to 2.8% in November, the lowest level since July 2022, helping the Nikkei to buck broader negativity across markets in Asia. 

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On the final day of trade before Christmas, all eyes are on the latest US inflation figures due at lunchtime. US futures are pointing to a lower open after the S&P 500 and the Nasdaq closed higher by over 1% on Thursday.

UK GDP 

The UK economy shrank in the third quarter by 0.1%. Analysts had expected Q3 GDP to remain unchanged at 0%. Second-quarter GDP was also revised lower from 0.2% to 0%. There are growing concerns that the UK economy is heading towards a technical recession having now logged one of two consecutive quarters of negative growth required to meet the threshold. Plus in a foreboding signal for the current quarter, UK GDP came in negative for the month of October. 

Although we have managed to avoid a recession thus far, for many it has certainly felt like we have been in one for some time amid the backdrop of elevated inflation, volatile energy prices, higher interest rates and broader cost of living pressures. 

While inflation has come back down closer to the 2% target, it remains almost double where it needs to be, and in absolute terms, prices are still much higher than they were before Russia’s invasion of Ukraine. The outlook for 2024 looks shaky with a sluggish consumer, ongoing price increases and more expensive borrowing costs.

UK RETAIL SALES 

UK retail sales rose by 1.3% month-on-month in November, outpacing analysts’ expectations for a rise of 0.4%. However, over the three months to November, sales dropped by 0.8% versus the previous three months. 

The Black Friday, Cyber Monday shopping weekend provided a much-needed boost to the languishing retail sector, particularly household goods retailers, clothes shops and department stores. Supermarkets also benefitted, with shoppers stocking up on specialist food and drinks for the festive season. 

Consumers, who are particularly price sensitive amid the cost-of-living crisis have been capitalising on these discount opportunities, carrying out their Christmas shopping in November, earlier than normal. While there was a notable pick up in spending in November versus October, the broader trend continues to point to a slowdown in retail spending with January likely to be even more difficult for the sector, which is having to rely more and more on discounts and promotions, which eat into margins.

NIKE 

Nike Inc Class B (NYSE:NKE) has cut its full-year sales forecast, sending shares sharply lower, down by nearly 12% after hours, wiping out its gains from the past month. It expects fiscal full-year revenue to increase by around 1%, below its previous guidance and analysts’ estimates for around 3-4%. It reported quarterly net income of $1.6 billion, beating estimates, but revenue hit $13.39 billion, just shy of forecasts. The sportswear giant is aiming to achieve $2 billion in savings over the next three years and it is launching new styles to try to boost customer demand. Nike said there was a ‘bifurcation’ in performance with some periods of weakness and others of strength, particularly around key shopping events like Singles Day and Black Friday. 

Nike has struggled amid the weak consumer backdrop, heavy promotions and discounts, sluggish online sales and a slowdown in demand from the world’s second-largest economy China. Sports retailers have been more cautious in terms of their stock purchases too, weighing on Nike’s wholesale business. While the US economy has thus far proven to be more resilient than expected, there are concerns about a slowdown coming through in 2024 which could hurt Nike. 

Shares in Nike are up around 3% this year before last night’s plunge, underperforming the broader US stock market as well as rival adidas AG (XETRA:ADS) which is up over 50% since the start of January. The stock is down over 10% today in Germany.