I debated writing a response to Nike's quarter, because I truly don't want to come across as being self-promotional. But I've gotten hit with a dozen questions over the past 40 min...So here goes...
The bottom line is that there's not a whole lot to say relative to our expectations.
1) But we said the company would earn a buck compared to the Street’s $0.89. They earned $1.01.
2) We said it would largely come from a meaningful revenue beat. They printed 7% compared to the Street at 3.4%.
3) We said inventories looked tight, which bodes well for Gross Margins. They SMOKED the gross margin line with a 300bp kicker vs last year. (More than we thought)
4) In typical Nike fashion, they invested the upside. If they wanted to, they could have printed $1.15 how I’m doing the math (I’m glad they didn’t).
5) Constant dollar futures grew by 6% -- double the Street’s estimate.
7) Inventories were down by 13%.
Big caveat…My sense is that about 25min into the call, Don Blair will douse the excitement of many folks who love these numbers. They’ll come up with a reason to keep expectations grounded. They’re fans of Shakespeare at Nike…”Expectations are the root of all heartache.”
Bottom line is that they beat on revenue and gross margins with accelerating futures while inventories were down double digits. We’ve been touting this as our top pick for the last two months. This is not a one quarter story, and not a one year-story. But rather, this is the beginning of a 2-3 year run where Nike will meaningfully accelerate top-line growth due to structural changes that will facilitate a new ‘go to market’ strategy that will allow it to tack on another $8bn in revenue. Yes, with the stock acting so well over the past month, and now with squeaky clean results one can argue that this is known. But I’d argue against that. Faster money could care less about the bigger call, and many others out there (esp the sell side) like it for the wrong reasons, and are missing the really big call here.
