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.
- 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.
- 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.
- 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 Nike.com 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 Nike.com 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.