I was watching Jannick Sinner bleed through his crisp, white Nike shoes yesterday thinking about the apparel company's earnings this afternoon. Nike pays Sinner over $15 million per year to wear Nike shoes and apparel. Probabilty markets had Sinner at 60% to win Wimbledon prior to the match. Tennis isn't everything but it's not nothing. Nike could frankly use a win and the idea of Sinner storming to the Wimbledon title would be better than nothing.
Then, just over an hour into the match, the second best tennis player in the world was apparently running around in a sock full of blood, dropping 2 sets to the 50th best player in the world.
Nike has made a lot of mistakes over the last decade. They tried, and failed to go DTC, they signed the most famous woman's basketball player in the world and didn't make her a shoe for 4 years and gave up high end shelp space across the board. 2 years into Elliott Hill's comeback $NKE shares are making nearly 10yr lows. Tonight the company is expected to report another down quarter in earnings, revenues margins and a 20% drop in revenues in the critical Chinese market.
But in all that time Nike had never made shoes that ripped the flesh off a star athlete's foot to the point that NBC refused to show Sinner's foot for several sets in the middle of the match.
As the announcers expressed concerned and mild disgust I was thinking one thing. "Maybe this is finally the bottom for Nike".
Hope is Dead
Nike is 76% off its all-time-highs and is probably still over-owned by the American public. Astonishingly, Nike still trades at 23x forward earnings which are likely to go lower tonight. Institutions want to own this stock. Nike is one of the greatest brands in American History. "Shoe Dogs" by Phil Knight is a classic of the Business Biography form. For the better part of 4 years people have been pitching Nike as a value play. Buyers have been murdered.
Here's the thing about specialty brands of any sort: No one believing is just the start of the bottoming process. Timing bottoms isn't a science or an art. It's a vibe. Right now, Nike has some of the worst vibes this side of Lululemon. The company has lost its core customer, its guts on the design side and, shockingly, it's abilty to make even acceptable high-end product in any scale. Weeks before the Sinner bloodletting Rory McIlroy was forced to skip a Major Championship practice round when his new Nike's gave him blisters.
Wrecking the feet of its athletes isn't the main cause of Nike's problems but it is a symptom. There's no reason to think Nike is on the cusp of solving its existential problems tonight or in the near future. Much as I'd love to take a contrarian shot to the upside it's just too early and Nike is too expensive.
We're one or two quarters from the company hiring a new executive to drive the company forward, getting Nike off the back foot for the first time in years. That will be the time to buy shares. Tonight's earnings call is more akin to Sinner's first round; just close your eyes and hope no one gets seriously hurt.
If you haven’t signed up already the time to do so is now, before we’re chasing these names higher.
