The print on Thursday should be a double edged sword for Nike. On one hand, despite the difficulty in modeling the upcoming quarter as Nike’s global network was shut down for virtually the whole May quarter (it’s 4Q), the consensus estimate of $0.12 actually looks reasonable. The Street is a little aggressive with top line estimates of -26% -- we’re -35%. But on the flip side, the Street has Gross Margin down by nearly 200bp. While that synchs with almost every other softgoods retailer missing on GM, we should see NKE buck that trend and actually put up a stronger number yy due to the shift to ecomm/DTC as opposed to its wholesale model. When all is said and done, there’s unlikely to be big sticker shock with the printed EPS number when Nike reports earnings – which is a rarity for a company in Retail these days. On the flip side, any way I cut it, estimates for the May 2021 FY still look too high, and though it does not guide explicitly, my bet is that Nike will nudge guidance in the appropriate direction accordingly. The Street’s estimates for the year have come down from $2.95 to $2.68 over the past 13 weeks, which is nice to see. But the problem is that I’m hard pressed to model an estimate for the year over $2.00 – we’re coming in at $1.86. We’re then looking at two years of aggressive EPS recovery – with growth 25%-30% per year such that we pierce the $3.00 per share veil by May ‘23. This is a company that should benefit from the consumer permanently changing behavior to shop more online for sneakers post-Covid – which is an accretive transaction to the tune of 2,000bps vs a like for like transaction at Foot Locker (which is on the wrong end of the trade), which is core to our positioning with Nike as a Best Idea Long. But like most names in retail, we still need to see out-year numbers come down. We’d look to get more aggressive on a guidance-related pullback.
Takeaway: 4Q expectations look to be surprisingly in check, though we still need a guide-down on FY21 (May). We’re buyers on a weaker guide.
