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January 13, 2009

It’s time for investors to get NKE on the front burner. The next ‘burst’ is near.


We’ve made no secret over the past year that we really like what Nike is doing to reposition the organization for its next ‘burst’ of growth, but simply that the repositioning effort is a 12-18 month effort that was tough to get too far in front of.  There are two things that have changed since we made this call repeatedly last year: 1) Time, and 2) Our increased confidence that the new organization is beating to the same drum to crush the competition. The bottom line is that we finally think that it’s time for investors to get NKE on the front burner. The next ‘burst’ is near.

Check out the chart below. It shows the 4 distinct bursts in the stock over the past 25 years where the stock doubled or tripled. The end of those periods usually are marred with stories in major newspapers or magazines noting the end of Nike as we know it. They’ve been wrong every time. People usually don’t step back and take the big picture into context on this name.

R3: NKE -- The Next Burst is Near - NKE Stock Price

If you want to clip an occasional 20% return in either direction, you can usually trade Nike based on noise around futures, anecdotes from retailers about new product launches, or gaming the usual ‘beat and guide down – only to beat again’ nature of how management sets expectations. If you want to do that, then be my guest. But that’s not the real juice to this story.

The real question is what will drive the next wave of growth, can the org chart handle it, and is it in expectations or not? This is a name that I study pretty darn closely, and have the highest degree of confidence in out of any name out there as it relates to really understanding bigger picture.

The key to growth will unquestionably be layering the category focus over deeper geographic penetration to get Nike’s on feet of the next wave of the 5.6 billion people it currently does not touch – and synching up apparel to gain traction where its performance has been average at best in recent years.   Can the org chart handle it?  Having recently spent time with management, I must say that it’s been a while since I’ve seen such cohesion in the growth plan. The answer there is ‘Yes’.  Is it in expectations? If we’re going to measure ‘expectations’ by consensus estimates – then the answer is No. Next year (May ’11), I think the Street is low by 20%.

In the meantime, can you get cute and trade ebbs and flows in futures, and momentum building up through the Olympics (not a huge deal), World Cup (much bigger deal), and what we think will be a turn in the retail landscape for athletic footwear in 2010? Sure, of course you can. A bigger kick should be the product acceleration out of Nike as we cycle the layoff period experienced in Feb-May 2009 when there was extreme uncertainty inside the organization, and productivity took a hit. We’re living with the fruits of that today given the 6-9 month lead time on much of Nike’s product. Since May, productivity and morale picked up meaningfully, but we have yet to see it in the numbers yet. Dial the clock forward 6-9 months from then. You do the math…

We should be in full swing from a revenue momentum standpoint by mid-summer. That’s when the people that did not start doing the work today will have to answer the question as to why they ignored the story.

There’s many layers here – more than can fit on a simple summary like this. Let us know if you’d like to discuss.


Target zeros in on its team of e-commerce platform builders - It’s going to be a busy year for Target Corp. as the multichannel retailer lays the groundwork for launching its own e-commerce site by the start of the holiday shopping season in 2011. Target, No. 20 in the Internet Retailer Top 500 Guide (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name), announced yesterday several of the vendors it has engaged to build Target’s own e-commerce platform. Target announced last year it would move off of Amazon.com Inc.’s e-commerce platform. Amazon, which has provided Target’s e-commerce platform for several years, will continue to support Target.com until the new Target site is launched. Target will utilize Sapient Corp. as its chief systems integrator and will build the new Internet infrastructure on a WebSphere e-commerce platform from IBM Corp. and database software from Oracle Corp. Endeca Technologies Inc. and Autonomy Corp. will provide applications for site search and content management, respectively, while Sterling Commerce Inc. will supply the site’s order management capability. Huge Inc. will provide web site design and related services.  <internetretailer.com>

Puma Names General Manager of International Footwear - PUMA announced that Mary Taylor has become the new General Manager of International Footwear effective Jan. 1, 2010. Based in Boston, she is responsible for the management of PUMA's footwear product design and development as well as product innovations in the sport performance and lifestyle ranges on a global level. Taylor reports directly to Melody Harris-Jensbach, Chief Product Officer of PUMA. Taylor has more than 20 years of experience in the footwear industry. Before PUMA, she was Chief Product and Marketing Officer at ONE7 LLC, a brand management company based in Boston, USA, where Taylor successfully re-launched global footwear product concepts and strategies. She also held senior positions with international brands such as Converse, Fila, Reebok and Keds/Stride Rite. <sportsonesource.com>

Bloomingdale's Outlets Said in the Works - Bloomingdale’s is pushing forward to launch outlets, according to sources, becoming a Johnny-come-lately into a potentially very lucrative channel of distribution for the department store chain. One real estate executive said Bloomingdale’s could be close to a deal with Simon Property Group Inc. to open several outlets around the country, taking a dramatic dive into the Simon-owned Mills properties, which typically comprise over 1 million square feet of gross leasable area and include traditional mall, outlet center and big box retailers and entertainment uses. In these sprawling centers, Simon has reclaimed some space from departing tenants, paving the way for Bloomingdale’s outlets, likely to be in the 30,000- to 40,000-square-foot range. Among the 16 Mills centers are Sawgrass Mills in Sunrise, Fla., Arizona Mills in Tempe, Ariz., and Potomac Mills in Woodbridge, Va. Bloomingdale’s declined to comment Tuesday on the strategy.  <wwd.com>

Sears Taps Wal-Mart Veteran James Haworth - Sears Holdings Corp. named James Haworth executive vice president and president of retail services, tapping an operations specialist who was widely reported to have been dismissed from Wal-Mart Stores Inc. in 2004 for violating unspecified “well-known company rules.” Haworth succeeds Kevin Holt, who is leaving the firm, and will oversee operations at Sears and Kmart and also serve on the internal holding company business unit board. He begins Jan. 31 and will report to the internal retail services board. Haworth spent two decades at Wal-Mart and was executive vice president and chief operating officer when he left under a cloud in December 2004. He founded a consulting firm the following year and most recently was chairman, president and chief executive officer of Chia Tai Enterprises International Ltd. & CP Lotus, an investment firm operating one-stop shopping centers in China.  <wwd.com>

Jones Apparel launches line for Kmart - Bristol Township’s Jones Apparel Group announced Tuesday its new GLO jeans line would be carried exclusively at Kmart stores starting this month. The GLO jeans collection targets teenage consumers and includes denim and non-denim bottoms, knit tops, woven tops and dresses. It will retail from $19.98 to $22.98 for basic denim, $26.99 to $29.99 for fashion denim and $19.99 to $21.99 for spring cropped pants. An national advertising campaign featuring ads in Seventeen magazine, People Style Watch magazine and various social networking and online initiatives will accompany the launch. <phillyburbs.com>

Ambani’s Retail Unit to Spend $87 Million on Footwear Stores - Reliance Retail Ltd., a unit of a company controlled by Asia’s richest man, plans to spend 4 billion rupees ($87 million) to add 100 outlets in India to sell branded footwear by Asics Corp., Stylo Plc and Adidas AG. Reliance Retail, today signed an agreement to sell Asics shoe brands including Gel-Kayano in its Reliance Footprint stores, the company said in a statement in Mumbai today. Mukesh Ambani’s retailing unit is tapping the $3.3 billion Indian footwear market forecast by the company to expand by a quarter as incomes rise in the world’s second-fastest growing economy. India’s growth may quicken to 10 percent in a “couple of years,” Kaushik Basu, chief economic adviser at the finance ministry, said on Jan. 4. <bloomberg.com>

2010 Must-Haves: What Consumers Want - Tech toys will be prominent on must-have lists at the dawn of the new decade. Hot new apps and mobile technologies were named by a handful of marketing experts — and close to 3,000 adults in a new Zogby Interactive poll — as things most desired to simplify lives, empower people and stay connected with others. These things “help people sift through a world when too much is available,” said John Zogby, chairman, president and chief executive officer of Zogby International. Asked to name one of 20 inventions or technological developments they could not live without, 2,841 adults polled Dec. 28 to 30 ranked high-speed Internet access as number one, followed by e-mail, Google, computer laptops/Netbooks and digital video recorders/TiVo. Spending more time online communicating via e-mail, social networks and video sites, Zogby said, is resulting in a “redefinition of peer groups — tribes of like-minded people who are becoming more important than any single demographic, like age and religion,” to marketers, among others. <wwd.com>

Challenge for 2010: Consumers Choosing Simplicity - This will be a year of living without. The U.S. is heading in that direction, marketing experts said. Brands face the challenge of consumers now accustomed to doing without things they once considered essential: attending a concert or sports event, dining out regularly, buying a new car when an old one was still running, and buying premium liquor or a status handbag.  In short, the country’s long-running, pre-recession spending spree isn’t likely to resume anytime soon. Consumers are expected to stay focused on buying fewer, more important things, in a time of the “anti-big” — a period in which they are redefining what they value, engaging in more local activities and spending more time at home with friends and family. A Zogby Interactive poll of 2,841 adults taken Dec. 28 to 30 found 40 percent of Americans anticipate having less disposable income at the end of this year than they did at year-end 2009, while one-third foresee having about the same amount in their coffers.  <wwd.com>

dering that the economy continues to lose jobs. <gallup.com>