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Nike is going to beat the quarter. Of that, I am near certain. Even with sales growth decelerating and gross margin improvement slowing, lower SG&A rates as Nike anniversaries investments in China, retail and Converse should accelerate EBIT growth to 20-22% (from 8% in NKE’s 1Q09). The Street is at $0.78, and I get to something closer to $0.90. But guidance concerns me -- one of the key factors being FX. Nike is financially savvy enough to manage through this climate better than anyone in the space. But the rate of change in FX is unlike anything they have experienced since the late 1990s. We took our estimate of Nike’s exposure by country, weighted the FX change accordingly, and came up with the chart below, which shows a 700bp delta in the yy change in FX. Yes, I know the company is executing on the Brand strategy better than ever. But business is slowing on the margin in the US, Western Europe is nothing to write home about, recent engines like Russia and the Middle East are questionable, and Japan – well – is Japan. Bright spots are in the Americas (especially Brazil) as well as China, but we’re talking less than 10% of total sales there.

The bottom line is that this brings me to a dilemma. The company will beat the quarter. But guidance on core business drivers should be light (I think that sales slow from 17% in 1Q to 5% by 4Q). Despite a weaker core, Nike can lever SG&A in 2H, and should benefit from higher non-operating income as FX hedges are marked-to-market. Yes, the stock is cheap at 7x EBITDA. But should it be any higher in light of how downright cheap other businesses are out there? No. I love the 3-year strat plan and massive call option on deploying its cash hoard, but fundamentally, this is a ‘do nothing’ story right now.