Editor's Note: Below is a brief excerpt from our Retail analyst Brian McGough's morning note Hedgeye Retail Direct. If you would like information on how you can access our institutional research email to email@example.com.
Nike is the main event this week with earnings out on Thursday pm. Expectations are big – as sentiment has only become more bullish after the company’s ragingly impressive December print where it bucked every Macro headwind globally and crushed the bears.
And with FL’s 9.7% comp two weeks back and positive brand commentary from DKS – Nike better not disappoint. It’s likely to deliver – but with the caveat that I’m ‘only’ two cents (3%) ahead of consensus ($0.66 vs the Street at $0.64). That’s probably at the low end of what the company needs to put up in order for the stock to rally on Friday.
I’m definitely not averse to owning Nike here, as the DTC model is just starting to hum after of years of debate about whether Nike can execute on it. Though this is a unique period where its pushing product at equal velocity both through its own pipe as well as the retailers – that won’t be sustainable which will set up for a terrific FL short within another two quarters.
While on the topic of Nike/Adidas, you gotta love Nike’s response to Zion Williamson’s #sneakergate. Coach K said Nike sent top brass to Durham – then went to China personally to oversee the manufacturing of Zion’s new shoe. They came back a week later with several alternatives, and Zion put up huge numbers his first game back.
The press is speculating that Zion will be endorsed ‘by a sneaker brand’ to the tune of $5mm per year. I think the press is low by 100%. And there is no way that Nike loses him. Adidas knows that, and they’ll bid him up accordingly to divert some of Nike’s sports marketing dollars.
That’s how the game is played…