10/07/2022
https://youtu.be/XHknWzc3wB0
Outlook: heavily dependent on a Chinese recovery. So it’s slow. Like Hugo’s running HAHAHAHAH.
Would like to preface this video with a personal opinion of mine. I believe Nike is culturally important & they’ve had their 50th anniversary this year). If you had a US$ 100 000 MBA from an Ivy League institution you’d probably conduct a Porter’s five forces analysis or a SWOT analysis and call it a day - Nike should be fine I & is a good company.
But as value investors we don’t just want good companies. We like companies that are cheap too. So, looking at the numbers is just as important as looking at the narrative. In some cases, numbers are more important than the narratives.
Sales fell 0.9%
Operating expenses (SG&A) increased 8%
meaning operating income fell 23%
A tax credit saved the day thanks to “onshoring our non-US intangible property”
So Diluted EPS only fell 3%
What did EPS do if you reverse that abnormal tax credit - surely a once-off?Agree, except no Adjusted number was provided.
But Earnings before tax is a good proxy
-26%
Wow!
But didn’t they say,
I recall them being big in China, how are things there?
1. Revenue down 20%, EBIT down 55%
Phew! So much for that growth driver..
2. And why did SG&A increase 8%?
A couple of reasons
Zero covid policy lockdowns in China, Global economic slowdown, but the most interesting one:
“increased demand creation expenses”
What?
I’ve never heard anyone refer to, "discounts" as “demand creation expenses”.
In terms of full price realisation: I think an avenue they should look to exploit more is the limited supply drops & collabs (off-white, supreme and Travis Scotts). You have these bots finding success on StockX and SNKRS websites (dutch auctions for limited supply shoes) - then individuals resell the shoes at 300% markups to collectors. I think they’d gain more success by just selling directly to the end consumer. Should support margins.
