It’s been a long time since Nike missed a quarter…first time for everything. Put up $0.62 vs the Street at $0.66. Guided down 1Q by 16% but kept the year. The company chalked the 4Q miss to brand investments and tax rate. Ignore the tax rate part…it only cost half a penny. This was an in-line revenue and gross profit quarter with considerably higher SG&A (which should have benefitted from the FX top line hit). The company calls SG&A increase due to ‘strategic brand investments’ – but more than half of this is driven by the same thing we’ve seen over the past two quarters – Nike finally equalizing pay for female employees after its #metoo gaffes. I’ll give ‘em a big golf clap on that as I have all along – it’s overdue, but it’s still a cost – and it contributed to a 2.5% EBIT decline, a rate hardly worth celebrating.
Looking at the regional performance, the quarter looked relatively good – particularly when comparing to all the earnings pukes we’re seeing out there in global retail. US accelerated, China stabilized, Europe got its teeth kicked in via FX – but held in there in constant dollars, with both Apac & Latin America and Converse (down 21% EBIT on 4.1% sales decline) as the only problem areas. All things considered – from a revenue generating standpoint there were fewer holes to poke in the quarter than 13 weeks ago – especially in the US and China, which should buoy the stock. But in no way should this SG&A increase be considered one-time (ie there’s no ‘easy SG&A comp’ next year). Despite the miss I’d be surprised to see the stock sell off given the constant currency revenue momentum and (in-line) gross margin improvement in the face of FX headwinds.
All in, I’d call this a ‘high-quality miss’ – the first time I’ve ever used that term in my career. But it’s also one I won’t buy into. Looks like a sandbag for 1Q20 – guidance of about $0.75 per share with the Street at $0.90. The company kept guidance at roughly an implied $3.00 for FY20 (May), and the Consensus is looking for another 17% growth on top of that for 2021. These numbers are doable, but I wont go long Nike unless I can model at least $3.25 this year, or I’ve got a stock in the low $70s – neither of which is the case today. This name is on my Long Bench, and while I won’t talk anyone out of owning it, I won’t touch it today – especially in Quad 4.