Nike shares slide on pessimistic earnings forecast

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Yahoo Finance Live presenters discuss Nike’s fourth quarter results.

Video transcript

Brad Smith: Let’s talk about Nike though. You teased it a moment ago, Nike shares, they’re currently trading lower here in the pre-market by around 2.6%. This after the company released its fourth quarter results warning that higher transportation costs and a strong US dollar could put pressure on margins in the coming fiscal year.

On that FX and FX front, they’ve mentioned in the last quarter that their cautious approach here – or excuse me their expectations for the full year, they expect it to see double-digit growth on a currency-neutral basis, but that impact because of the currency headwinds, an impact of about 400 basis points, that’s what they’re looking for there.

BRIAN SOZZI: I think I’m going to run out of time here. I will not be able to arrive at all that I want to say. So, first off, if you wake up this morning wondering why Nike is the top trending ticker on Yahoo Finance and the stock is down before market; gross margins down year on year, missed consensus; North American sales, consensus missed; Sales in China, missed consensus; operating profits in most international regions down. Not good.

On the conference call, I – first of all I have to hit the Nike team here, they spent about 20 minutes talking about anything other than what’s wrong with the company. I know on an earnings call you’re supposed to buzz, get people excited, but again, I’m going back to what we were talking about a few weeks ago. I would have liked to hear more just the transparency…

Brad Smith: Yeah.

BRIAN SOZZI: — leading these calls to prepare investors for what may come in the months ahead. The next thing I didn’t like, inventory up 23% year-over-year vs. sales down 1%. And they dropped that word on the call on revenue, which will be earnings – which will be the word to watch for retailers as a report in a few weeks, promotional. They see a more promotional environment as more inventory comes into this market. We heard it from Target, we heard it from others, huge red flag.

JULIE HYMAN: I–

BRIAN SOZZI: I think I got it.

JULIE HYMAN: I think you have it. That said, on the conference call, they spent a lot of time talking about China and some of the difficulties…

BRIAN SOZZI: Yes.

Brad Smith: Yeah.

JULIE HYMAN: – they have there, so it’s not like they’re sweeping stuff under the rug here by any means. And it’s still Nike, right? The company is still seeing growth, growth at constant exchange rates, growth in many of its various regions, even though sales in China have fallen 20%, even as North America declines. The company has always talked a lot about innovation. It’s one of the things he does.

And what is Nike’s 50th anniversary? So they talked about it a lot. There was a recent broadcast in “The New York Times” talking about the cultural significance of Nike. So yes, red flags, yes, a slowdown, but like Nike, it’s okay.

BRIAN SOZZI: I’m still trying to figure out, Brad, is this a recessionary quarter for Nike? It’s not there yet. Looks like they were able to push through the price increases, but you still get the feeling that growth is slowing down in this business.

Brad Smith: Right. And in terms of pricing strategy, their long-term goal is to be 65% of full price realization there. And so there is always a discount mechanism that is part of Nike’s strategy. However, in terms of the cultural annexation that a brand like Nike also has, you have to wonder for some of the limited runs, some of the inventory issues even, other than the limited run inventory that they put there that makes its way to StockX, which resells for $600, $1,000 in some cases.

BRIAN SOZZI: Our Brian Cheung, always buyer of these shoes.

Brad Smith: Exactly. And so he outbids us all on eBay and beats us on the sneakers app at the same time. And so all of that considered, you have to wonder if there’s some of that cultural deterioration that might be taking place as a result of people having bad experiences trying to buy the product. And then having to pay 3, 4x for that same product that someone else might have gotten because they have a bot on sneakers or something.

JULIE HYMAN: Well, and in the past, you know, you’ve wondered, OK, who’s taking this part? Now, it’s not somebody else taking that part, it’s something else taking…

Brad Smith: Yeah.

JULIE HYMAN: –this sharing. In other words, if I spend a lot of my free time if it’s one of my hobbies buying sneakers in the way you describe, it doesn’t become fun anymore. Well, I’m going on a trip, right? I’m going out to eat.

Brad Smith: Right.

JULIE HYMAN: I’m going to spend… I’m going to allocate my money in a different way. Instead of on another sneaker maybe. Maybe I do not know.

BRIAN SOZZI: I just want Nike…

JULIE HYMAN: What do you have on?

BRIAN SOZZI: –I want Nike to bring back languages.

Brad Smith: I– I actually–

BRIAN SOZZI: Do you have tongues in your shoes? I’ve had–

Brad Smith: Languages ​​?

BRIAN SOZZI: –three pairs of Nike sneakers–

Brad Smith: Yes?

BRIAN SOZZI: — in the last, say six months, none of them have a tongue.

JULIE HYMAN: No, they have a language but it is integrated.

BRIAN SOZZI: They do?

JULIE HYMAN: It is an integrated language.

BRIAN SOZZI: Sounds like cost savings to me.

Brad Smith: I have the Adapt.

BRIAN SOZZI: I want my languages. If I have to pay $150… those are nice shoes, Brad. They are really nice shoes. They have languages

Brad Smith: They are actually golf shoes.

BRIAN SOZZI: Oh good?

Brad Smith: Yeah.

BRIAN SOZZI: They are really nice. I love languages.

Brad Smith: Jordan A call.

BRIAN SOZZI: I want languages.

JULIE HYMAN: He loves languages.

BRIAN SOZZI: Nike brings back languages, I need them.

JULIE HYMAN: Oh, there we have the shoe camera.

BRIAN SOZZI: Yeah. Shoe cam.

JULIE HYMAN: Shoe camera happening.

BRIAN SOZZI: Here we are.

JULIE HYMAN: Okay, let it– let the record reflect that Brian Sozzi–

BRIAN SOZZI: I want languages.

JULIE HYMAN: –is the pro sneaker language, OK.

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