NKE: What’s the Future of the Futures?

We disagree with the noise about Nike’s futures growth rolling over. The underlying trend-line numbers should accelerate. Our call on the name and the space remain intact.


It used to be about two out of every three quarters where I’d have to come out and add context to an errant report about futures slowing (or accelerating) a week before Nike’s quarter.


Well, it’s been a while, but I’m back.  OTR (or some ‘channel checker’) is out saying that Nike’s order rate is slowing ahead of its 3Q report on March 17.   


I disagree. Here are a few considerations.

  1. Let’s face some facts, being a ‘channel checker’ might work on tiny brands like K-Swiss, or in monitoring the popularity of certain styles or consumer preferences.  But, is it viable to check with stores (where most managers don’t know the difference between year-over-year and sequential growth) and use such a small sample as a proxy for a $21bn global company? That’s like going into a Duane Reade and making a call on P&G based on shelf space for Crest.
  2. Last quarter Nike reported a 16% growth rate in North American futures.  To put that into context, that’s about the dollar-equivalent size of Under Armour. NO ONE I have spoken to believes that this is sustainable – not even me, and my EPS estimates are well ahead of consensus for the next 2-years.
  3. Keep in mind that the 2-year comp for the past two quarters in North America is 5-6%. Technically speaking, Nike can report a NA  futures number as low as 3% and sustain the 2-year run rate. We’re still looking for something closer to 10%. In other words, we’re modeling an acceleration in the 2-year comp for North America.

Backing our confidence is an extremely powerful product cycle in the athletic space, which is not surprisingly led by Nike.


For the past several months, we’ve been noting that Nike was about to set out on a campaign to re-define it’s “Free” concept – which is a technology originally launched in 2004 to mimic the sensation of running barefoot on grass. Nike might seem dismissive of the toning category, but mark my words – they’re miffed, BIG TIME. Our call has been that they’d start with the Free platform, and re-define the toning category. Now we’re starting to see it play out.  Most notable is that the first big splash is in none other than China. This marks the first time we recall a new platform being  launched anywhere except the US.


Make sure you scroll through all the pages for all the images.  Looks like there’s Free Run 2 and Free 3.0


The 3.0’s are now available in one colorway on and at Foot Locker.  99% of what was shown in China is not yet available for purchase here or anywhere.  However, they’ll trickle out within a few weeks.  A quick check on reveals a Free platform that spans running, training, walking ,and even a bit of fashion.  Some of this already existed.  Importantly, we have yet to see the big marketing push that goes with the launch but our sense is that it’s coming real soon…


We’d also bet that this next wave of product innovation makes its way into the first three minutes of Nike’s March 17th 3Q EPS call.


Brian McGough

The Bounce: SP500 Levels, Refreshed

POSITION: No position in SPY


In this morning’s Early Look I posed the simple question: Quake or Correction?


I answered the question with Correction – and no that doesn’t mean I am bullish on US Equities. It doesn’t mean I am bearish at every time and price either. I’m trying my best to be Duration Agnostic.


1.  The TRADE - from an immediate-term TRADE perspective, the SP500 is oversold at the 1288 line (see chart). It will also be immediate-term TRADE overbought on The Bounce at the 1312 line. Therefore 1 is the immediate-term TRADE range and I plan on managing my risk exposures accordingly.


2.  The TREND – from an intermediate-term TREND perspective, the SP500 is overbought and oversold at 1343 and 1265, respectively. Therefore 1 is the intermediate-term TREND range and I plan on managing my risk exposures in the intermediate-term accordingly.


There should be plenty of emotion around the 1301 line. That’s the 50-day moving average that, for better or worse, a lot of people without a multi-factor, multi-duration, risk management process use. So watch the VIX, USD, and OIL as you keep all of the factors in mind.




Keith R. McCullough
Chief Executive Officer


The Bounce: SP500 Levels, Refreshed - spchart

Big investor dumps its U.S. Treasury bonds


The Macau Metro Monitor, March 11, 2011




In a statement late on Thursday, the 89-year old billionaire said he filed a note of discontinuance on Feb. 21, dismissing a legal case against members of his second and third families, which include daughters Pansy and Daisy Ho.  "A deed of settlement was executed between all branches of the Ho family," Ho wrote in a signed letter.


16 gaming legislation bills



It's still early in 2011 but more and more state bills proposing slots are popping up, which means more opportunities for the slot players.  As we mentioned in TIS THE SEASON (1/12/11), the environment for gaming expansion is hot given the enormous budget deficits that states have to overcome.  While nothing is guaranteed, we believe many of these bills will be given serious consideration later this year or in 2012/2013.


Some key ones to keep an eye on include Ohio, Massachusetts, and Delaware.  Gov Kasich of Ohio doesn't mind slots at the racetrack but he is seeking a gambling consultant to review the impact of slot machines at the state’s seven racetracks.  Massachusetts has had a long history of disappointment in legalizing casinos but an agreement with Gov Patrick may be coming to fruition. Delaware recently introduced a bill promoting two more casinos, which we estimate could bring 6,000 more slots to the state.


And there is the three giant wild cards—Texas, Florida, and Illinois—which would be a significant boost for the slot suppliers.


Here are the 16 bills:



Bill: HB 40: two casinos—one each in Sussex and New Castle counties; three possible gaming venues--Del Pointe Resort and Racino in Millsboro; Old Georgetown harness track off Route 9; Delmar International Speedway off Route 13 in Delmar

Est Slots: 6,000

Status/Details: HB 40 will be assigned to the House Gaming & Pari-mutuels Committee

Timing: 2011

Convene Session Date: Jan 11, 2011

Adjourn Session Date: June 30, 2011



Bill: SB1708: 5 "Destination Resorts"—one in five regions around Florida; 

Est Slots: +10,000

Status/Details: 500k sq ft of MICE space, +1000 hotel rooms; <10% sq ft for gaming; $50MM upfront cense fee; $1MM application fee; {10% tax rate (+2BN cost); 15% tax rate (+1-2BN cost); 20% tax rate (<1BN cost)}; 7-member Destination Resort Gaming Commission; Miami commission said it opposes casinos; Possible developers: LVS, CZR, MGM, PENN, GENTING

Timing: 2011/2012; earliest date for casino opening is 2015

Convene Session Date: Mar 8, 2011

Adjourn Session Date: May 6, 2011



Bill: Rep. Stephens proposal—casino in Special Entertainment Zone; 

Status/Details: Plans to introduce constitutional amendment toward end of legislative session; Possible locations: Jekyll Island, Lake Lanier and Savannah’s Hutchinson Island

Timing: 2011

Convene Session Date: Jan 10, 2011

Adjourn Session Date: Mid-April



Bills: 4 riverboat casinos: 3 near Chicago, 1 in Danville; 4,000 position land casino in Chicago; 1,200 slots at 4 tracks near Chicago; 900 slots each at two St. Louis area tracks; Existing casinos to expand from 1,200 to 2,000 gaming positions in 400-position increments

Est Slots: VLT Bill: 30,000-50,000;

Status: Regarding slot bill, State Appellate Court called Video Gaming Act (VGA) unconstitutional; appealed to State Supreme Court; State Legislature may have to pass VGA again.

Timing: June/July 2011

Convene Session Date: Jan 12, 2011

Adjourn Session Date: Meets year-round



Bill: HB 2002—casino and racetrack slots in Southeast Kansas

Est Slots: 1,500

Status: Referred to Committee on Federal and State Affairs; unlikely to pass given Republican House; 1) minimum casino investment at $100MM (previously $250MM); privilege fee at $11MM 2) Slot payout at 58%

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: Late May 2011



Bill: 3 resort casinos, 2 racetrack slot parlors (Casino resorts located in Western, central and Greater Boston areas; likely racetracks—Plainridge Racecourse, Raynham Park)

Est Slots: 5,000

Status: Passed state legislature in August but Gov Patrick disapproved of slots at tracks. Revisions expected this year.

Timing: 2011

Convene Session Date: Jan 5, 2011

Adjourn Session Date: Meets year-round



Bill: Slots at Prince George's County's Rosecroft harness racing track

Est Slots: 750

Status: Very preliminary; needs House and Senate approval

Timing: Referendum Nov 2012

Convene Session Date: Jan 12, 2011

Adjourn Session Date: Early April



Bill: Biddeford proposal & Great Fall Recreation and Development proposal

Status: Has enough signatures on petitions to force a statewide referendum. If Legislature does not change existing law to open a racino, then proposal would go to referendum. Maine's racino law requires local approval of communities where existing harness-racing tracks were located.

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: May 23, 2011



Bill: Proposal for several new casinos

Status: Very preliminary

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: May 23, 2011



Bill: Racino Act—slots each at Canterbury Park and Running Aces; Governor Mark Dayton proposed Mall of America casino

Est Slots: 4,000

Status: Sen. Dick Day (R) says the Racino Act is still shy of 20 votes in the House.

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: May 23, 2011


North Carolina

Bill: Proposal for VLTs

Status: Gov. Beverly Perdue considering recommending VLT bill to legislature

Timing: 2011

Convene Session Date: Jan 26, 2011

Adjourn Session Date: Early June



Bill: Slots at 7 racetracks

Est Slots: 17,500

Status: Passed Legislature and ready for implementation but facing outside legal issues (Ohio Supreme Court/Let Ohio Gov-elect Kasich looking over slot proposal and will decide whether to seek a court order to determine authority over the matter. Kasich said on 2/25 that he’s in no rush to legalize slot machines at the state’s horse racetracks.

Timing: 2011

Convene Session Date: Jan 3, 2011

Adjourn Session Date: Meets year-round


Rhode Island

Bill: Proposal for 1st full-scale casino

Status: Very preliminary $100 MM, one-time licensing fee

Timing: Referendum Nov 2012

Convene Session Date: Jan 4, 2011

Adjourn Session Date: Late June



Bill: 4 "destination resort" casinos (Dallas, Harris county, Bexas county, South Padre Island); Slots at 13 racetracks and 3 federally recognized Indian reservations;

Est Slots: +15,000

Status: Texas Gaming Association expects to release financial projections in late Jan. No planned date for introduction of bill.

Timing: 2011

Convene Session Date: Jan 11, 2011

Adjourn Session Date: May 30, 2011



Bill: Proposal for one casino

Status: The bill calls for the Vermont Lottery Commission to oversee the casino.  Proceeds would go to the state Education Fund, as they do for lottery tickets now. A $5 million licensing fee and $50,000 application fee.

Timing: 2011

Convene Session Date: Jan 5, 2011

Adjourn Session Date: mid-May


West Virginia

Bill: HB2140

Est Slots: ~500 per year

Status: Passed state House Judiciary Committee; heads to House Finance Committee $10MM per year allocated to racetrack fund intended to help the 4 state racinos

Timing: 2011

Convene Session Date: Jan 12, 2011

Adjourn Session Date: mid-March

Early Look

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