Morgan Stanley cuts Topsports to equalweight, slashes target 54% on Nike risk

Morgan Stanley downgraded Topsports International to equalweight from overweight, slashing its price target 54 percent to HK$1.67, as Nike's decision to reclaim online distribution rights in China threatens a fifth of the retailer's revenue.

"Nike's reclaiming of online distribution rights poses enormous uncertainty for retail partners," Morgan Stanley analysts wrote in a research note. The brokerage cut its earnings per share forecasts for Topsports for fiscal 2027 through 2029 by 20 percent, 44 percent and 38 percent, respectively.

Topsports, Nike's largest single-brand store operator in China, derived 22 percent of its revenue in the fiscal year ending February 2026 from Nike online platform sales. Morgan Stanley expects revenue to decline 14 percent year-over-year in both fiscal 2027 and 2028, with net profit falling 21 percent annually over the same period.

The downgrade follows Nike's July 22 notification to Topsports that it will terminate the retailer's online distribution rights in mainland China effective Jan. 1, 2027. Topsports said the move will have a "significant negative impact" on its business in the short term, though offline sales cooperation will continue. Shares of Topsports fell 8.3 percent on the day of the announcement, extending a decline that has erased more than half the stock's value over the past year.

Nike's push to reclaim online pricing power comes as its Greater China sales have declined roughly 30 percent over the past five years. The sportswear giant reported seven consecutive quarters of negative growth in the region, with third-quarter revenue dropping another 10 percent. Nike Chief Executive Officer Elliott Hill acknowledged on an earnings call that the company had "become a casual lifestyle brand competing through price wars in China," underscoring the urgency of the channel overhaul.

For Topsports, the loss of online distribution rights accelerates a structural shift that has already forced the retailer to close more than 3,300 stores over the past four fiscal years. The company has been diversifying beyond Nike and Adidas, adding brands such as Norwegian outdoor label Norrona and British running gear maker SOAR to its portfolio. Pou Sheng International, another major Nike distributor in China, faces similar pressure as the brand tightens control over its digital marketplace.

The target price cut to HK$1.67 implies roughly 30 percent downside from the stock's closing price before the announcement, reflecting Morgan Stanley's view that the structural shift in Nike's China strategy will permanently alter Topsports' earnings power. Investors will watch for further distributor downgrades as Nike pushes ahead with its direct-to-consumer overhaul in China, a market where the brand's sales have declined about 30 percent over the past five years.

This article is for informational purposes only and does not constitute investment advice.