The world’s largest sportswear manufacturer, Nike Inc. (NKE), faces “fundamental challenges” and an excess of inventory with retail partners, according to one team of bears on the Street.

In a research note this week, analysts at Goldman Sachs downgraded shares of the Beaverton, Ore.-based athletic apparel and shoe company from buy to neutral, citing an intense promotional environment. (See also: Nike Investors' 'Patience Is Wearing Thin': Canaccord.)

The gear maker's sales aren't expanding in its key North American market. While growth in the region was 6 percent in fiscal first-quarter 2017, sales fell 3 percent in the most recent fiscal first-quarter 2018. 

Nike has been open about its recent woes, causing sales to decline in the mid-single digits over the past two quarters, the firm has been attempting to turnaround its inventory glut with a new pipeline of innovations targeted at consumers who have increasingly veered toward rivals such as revived German competitor Adidas AG (ADDYY).

Trouble on the Brick-and-Mortar Front

Goldman analyst Lindsay Drucker Mann indicates that “drivers of domestic pressure will take some time to work through, exacerbated by persistent excess inventory sitting at Nike’s brick and mortar retail partners and the high visibility this markdown product gets as it is funneled online via Amazon.com Inc. (AMZN) and other platforms.”

Drucker Mann also highlights downside from Nike’s slowing sales trends in Asia, as deceleration in China causes “particular pause.” This should worry investors, suggests the analyst, given the company has generated half of its revenues from overseas in the past decade.

Despite a number of negative headwinds, Goldman sees some positives such as Nike’s NBA sponsorship. Overall, “the underpinnings of Nike’s business remain compelling,” writes Drucker Mann, indicating that the company still has the ability to increase its share of the market.

Closing up 0.7% on Friday at $53.06, NKE shares have gained 4.4% year-to-date (YTD) versus the S&P 500’s 13.5% increase over the same period. The Goldman analyst reaffirmed her $54 price target for NKE. (See also: Buy Micron, Ditch Nike, Says Jim Cramer.)

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