Shortly after 11am, it hit the tape that Tiger will be returning to professional golf by playing in The Masters next month. One can argue that the $0.20ps that the stock jumped since then is in reaction to the news. We’d step back and ask the broader question as to who had the inside information and bought the stock accordingly pushing the stock from $64 to $71?
Regardless, this is good for Nike – from both a business standpoint and as it relates to price momentum. Keep in mind a few things…NKE is one of the few sponsors that did not drop Tiger like a bad habit over the past four months. Did it restructure his agreement to take down up-front risk in the event that he either prolonged his return or fails to perform upon his return? Probably. But they stuck with him. Interestingly, Tiger gear has been selling well as if nothing ever happened, and the golf market overall has definitely shown signs of picking back up after a long bottom. Though public perception is still very touchy at best, they’ll have much more in their back pocket to market him upon his return.
Is it any shocker that this was announced a day before Nike’s EPS? Probably not. In fact, we’d argue that given the 11.4% run in the stock over 4 weeks, it HAS TO pony up some solid numbers on results. The good news is that we think it will. We’re modeling $1.00 vs. the Street at $0.89. The biggest variance is on the top line, where we’re coming in at 8% versus the Street at 3.5%. Much of this is World Cup-related, which we do not think is appropriately accounted for in most models.
If we’re off anywhere, it would likely be sales coming in 2-3% lighter, with that product showing up as higher inventories – again – due to World Cup. With Keith’s models suggesting that the stock is approaching a near-term overbought line of $71.17, we think that any result close to the consensus would jolt near-term enthusiasm, and give investors a shot at what we believe will be perhaps the best multi-year growth story in consumer/retail.
- Brian McGough