NKE | Nike US Inventories Correct -- Bullish Datapoint

10/12/16 11:29AM EDT

Three key callouts from Nike's 10Q. 1. Regional inventory trends -- US getting better. 2. Quantification of consolidated GM puts and takes. 3. Regional GM trends (which we synch w inventories in Regional SIGMAs). The punchline is that the North America inventory correction stands out above all as a bullish datapoint. With the hyperfocus on Nike's US business, this matters.

Nike 10Q – Regional SIGMA Callouts and GM Disclosure

a. The key thing we like to do when Nike files its Q is to get the full inventory, sales and margin disclosure for each of its regions. The SIGMA chart for all pieces of the Global portfolio are in the chart below.

Simply put…

  • The US took a tremendous positive move into the ‘inventory clearance’ quadrant.
  • With that SIGMA clean up in NA, gross margins were down 90bps, as lower product costs were more than offset by the negative impact of clearing inventory.
  • Asia looks incrementally better.
  • Europe and Emerging Markets look horrible.

NKE | Nike US Inventories Correct -- Bullish Datapoint - NKE N.A. SIGMA

NKE | Nike US Inventories Correct -- Bullish Datapoint - NKE INTL SIGMA

b. NKE 1Q Gross Margin Breakdown: GM % was down 200bps yy

  • ASP: +60bps
  • Product Costs: -40bps
  • Increased off price sales: -30bps
  • Lower DTC margins via higher factory store sales: -30bps
  • FX: -40bps
  • Higher Other Costs (investments in sourcing, manufacturing resources, warehousing, logistics, and Golf Equipment exit costs): -80bps 

Note: this sums to -160bps, perhaps implying the cost shift from SG&A accounts for the remaining ~40bps – smaller than we initially suspected.

 c. Gross Margin By Region:

  • NA: -90bps, lower costs offset by clearing inventories
  • W Europe: -630bps, higher asp offset by fx
  • E Europe: -890bps, FX hit, higher product costs, partially offset by higher asp
  • China: -210bps, higher ASP, offset by higher product costs  and FX
  • Japan: -240bps, lower product costs offset by FX and lower DTC margins
  • Emerging Markets: -350bps, FX hit and higher product costs, offset by ASP increases
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