Greek Goddess of Duration

 

Greek Goddess of Duration

 

You might think I am nuts, but I'd call this an in-line quarter. Puts and takes ignore the real call - but that's a full year out. If the market shoots first and thinks second, a sell-off might = opportunity.

 

I'm sitting here staring at my keyboard wondering what to say about Nike's quarter. The sell-side will talk about how 'management is executing in a tough retail environment' (while Analysts take down numbers and justify ratings), or that we are in a 'swoosh-shaped recovery'.  But I'm coming up dry. You're gonna think I'm nuts, but despite management's cautious tone and guidance, I really think that this Q was right in line. Yes, NKE beat by a couple pennies, and yes, the numbers Nike is printing in light of 1) its reorg and 2) the economy are commendable. But on the flip side, orders are down both sequentially and yy nearly across the board. Inventories have stopped rising, which is great, but receivables and payables went the wrong way. The balance sheet still looks stellar, but not buying any stock in the quarter is a negative.  Put, take, put, take...blah blah... I could go on, but these items add up to one big push in light of what the REAL call should be.

 

I'm going to tie this all back into my thesis that with Nike, we're in a period where you simply can't look at a few points either way in inventories, futures or EPS. It's pretty irrelevant in the grand scheme of this story. Nike is setting itself up today for one of those massive bursts where futures take off, inventories contract, and we're looking at 20-30% EPS growth. The bad news is we won't see this until fall 2010. Even if the market starts to discount this 2 quarters out, we've still got to wait a year.  Check out my note from 2 days ago titled 'Duration, Duration, Duration.' If you can be a year early on a stock, then knock yourself out here. But my sense is that we're looking at a range bound name for the better part of a year. I walk through why in my 'Duration' note.

 

What could change near-term?  The Street may or may not know. But Nike's CFO just sandbagged them big time. If we're looking at $0.20-$0.30ps reduction in consensus estimates heading into lowered 1H10 (May) guidance, then I'd be prepared to be nimble on this sucker if it sells off into the mid $40s.


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