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NKE– We’d like to address the elephant that’s been quietly sitting in the back of the room since Nike’s analyst day on October 9th. Specifically, Nike finally outed a key initiative we’ve been talking about for two years – the ability to manufacture customized product (by color and size) at point of sale.
Think about it – the model for footwear makers over the past four decades has been to design product in the US, and then to outsource to Asia – the entire process taking nine months at the earliest.
Now, NKE is introducing the capability for a consumer to walk into a store and build their own shoe at a kiosk. They’ve had that capability through NikeID at their own stores for a while. But those orders still go to one of its 700 third-party plants in Asia to be processed. Now the product is being manufactured right there…on the spot.
So basically, a consumer could go into the store, build a shoe electronically, then go to Chick-fil-A for a bite to eat, and return an hour later and their shiny new kicks will be waiting. This is an absolute game changer, and it’s one that no other brands have the scale to compete with.
Sound expensive for Nike?
Ask yourself this…what retailer on the planet would not give their left arm to have one of these Nike kiosks/mini-manufacturing hubs in their stores? It’s be a big competitive advantage, and one that we think would lead the Foot Locker’s of the world to lay out the capital needed on their own balance sheet. Nike only allocated 90 seconds to this at their meeting. It was worthy of three hours. We think that people will grossly underestimate the importance of this initiative (no one even asked any questions on it).
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TROW – T Rowe Price continues to fire on almost all cylinders after its earnings report this week that beat Street expectations on both revenues and on earnings per share. The firm did however see institutional outflows at the end of the quarter which was the only hang up in an otherwise strong release.
The outflow in the third quarter was improved from last quarter’s withdrawal and is again coming for only a small select group of sovereign wealth funds in Asia that are rebalancing their asset allocation after above benchmark performance from TROW funds. TROW continues to maintain the largest percentage of fund assets in 4 and 5 star funds, the only mutual funds that historically have received any new inflow.
As such with these sovereign outflows to be finished soon in our view, TROW will again return to positive net inflow which will be a positive catalyst for this leading fund manager. T Rowe has $1.6 billion in cash, forward free cash flow of $1.2 billion, and no debt which give this company leading financial stability in the group with the ability to raise its dividend again into 2014 as investors wait for net inflows to return.
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