NKE: We Need A Redistribution

Keith shorted Nike today in the Hedgeye portfolio as he did not believe that the positive call one pundit made last night was worth its salt. We’re seeing all the right moves by the company to lead in both market share and profitability in this space, which should accelerate growth 2-3 quarters out.  Unfortunately, Nike’s latest miss might not prove to be a one-off event. The absolute growth, and rationale behind it, is fine with us, but we have a mismatch between Nike’s communication and the Street’s expectations.

 

Let’s look at the modeling trajectory for the next five quarters. Nike uncharacteristically left its guidance wide open for interpretation. Don Blair (CFO) is not one to use words loosely. But saying ‘next year sales up hsd or better, GM% down, and leverage SG&A, but not enough to offset weaker GM’ might be fine for annual guidance – but to give virtually zero color on the timing by quarter given all the moving parts is tough (especially after having just spanked the Street with a 300bp 4Q GM hit). Am I faulting the company for its guidance practice? No. I’m not a big fan of the quarterly guidance game. But a ‘no guidance’ policy also has its consequences. It allows the Street’s models to fall out of synch with financial reality. That’s what we’re got today.

 

 

NKE: HEDGEYE MODELING ASSUMPTIONS 

NKE: We Need A Redistribution - tBLW

 

Nike’s stock works when it is beating earnings. Period. I’m at $4.85 vs. the Street at $4.76 next year. That $0.11 delta is great, but the reality is that I’m $0.24 ahead in 4Q. For the four quarters leading up to May12  I’m below.

 

So…something’s gotta change. Either my model – which I have no reason to do today – or wait for the Street to ‘fine tune’ its expectations.

 

Our concern, of course, is that this redistribution comes alongside F4Q11 earnings in June.

More importantly, it is that this is a market that will give Consumer Discretionary stocks zero benefit of the doubt – especially while lesser companies are on the tape printing more respectable numbers.

 

The key here is that our thesis for the retail space overall calls for a severe breakdown in earnings by the end of June. Nike’s trajectory should accelerate when the rest of the pack lags.

 

But it’s a long time til the end of QE2 in June.

If you can be nimble, the be nimble. Lighten up, or protect yourself on the downside.

 

There'll be a time to buy this stock this year. But this simply is not it.


SECTOR SPOTLIGHT | Live Q&A with Healthcare Analyst Tom Tobin Today at 2:30PM ET

Join us for this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more