Nike Investors Focused on China, CEO Ahead of Earnings

Nike, the report after the close tonight, and we wanna get a preview of that. I'm just looking at the stock here. It's up 1% today, but it's down 44% year to date. Definitely some challenges that Nike's been dealing with, and we'll break it all down with Poonam Goyal, senior US ecommerce and retail analyst for Bloomberg Intelligence. Poonam, give us a preview here of, what's going on at Nike and what we might hear during their earnings report. Sure, Paul. So it seems like it's going to continue to be an uneven recovery. We should see strength in North America, which has been encouraging for the last year, but it all comes down to China. We're expected to see double digit declines again. And I think that's okay, but the narrative should be, are things getting at least a little bit better? And I think that's what I'm looking to hear. We also have gross margins overall that should improve. And if they do, that's the first in a while. So I think that'll be a good positive sign. But everything really rests on the Analyst Day that's coming up in six weeks, and that's where we'll hopefully hear from Nike more on the long term strategy, how they're going to turn China around, and what the outlook really is for this ecommerce slash athleisure giant. Digital should be stronger this quarter finally to to really make a difference and move the needle. So talk to us about some of the the headwinds that this company has been been dealing with. One of them, I remember you've been talking about is kind of they've got an inventory problem. How did that happen and and how long to fix it? It's happened a long time ago at this point. You know, we're talking about probably right around the COVID time frame. We think it should start to show that it's being fixed this quarter, that's why gross margins will start to inflect and hopefully turn positive tonight when we hear them report. The inventory buildup was a function of sales just not materializing. If you remember a few years ago, several years ago, Nike pulled out of wholesale in a meaningful way. Yep. And they built a lot of inventory around their legacy product like the air forces, etcetera. That product inventory has been in the system for several years now and is finally, we think, at least in North America, not across the world, worked its way down. It's still a big issue in China and the rest of the world. Talk to us about China. What is the situation in China for Nike? Yeah. China looks very different than North America. The issue is much broader than just having too much inventory. The issue is that the Chinese customer doesn't view Nike as an affluent athleisure brand. So that's the first problem they have to solve. The second problem is Nike doesn't have the newness that it has in North America and China. It's just not introducing product as quickly to those customers, and the product is everywhere with Nike owning less of the narrative, which it needs to also change. How about the competitive landscape? I mean, Nike to me is the brand. That's kinda... Just kinda what I grew up with with all my, you know, all the sports endorsements that we've all grown up with. But the younger generation, just walking around here at the Bloomberg headquarters, lots of different sneaker brands that I'm not really familiar with, but I know they're they're there and they're big. Yeah. Look. Competition, when Nike gave up its wholesale positioning, a few years ago, they allowed other brands to encroach in their territory. Some of those names are what you probably see are Oanh's, Oka's, Solomon's, Asics, Brooks, New Balance, you name it, the list continues. What's happening and where we see the share loss happened over the past few years is really in the premium price point. So if you think about the average Oanh sneaker, it's over a $150. And those are some of Nike's premium shoes. So I think in the lower price point, Nike does still have some dominance across America. It's just when you think about running shoes, when you think about things that have more performance built into them, that's where others have taken share. And Nike now has to be part of the wardrobe, not the wardrobe, which it once was. How does celebrity sponsors, big sports stars, Nike used to dominate that business. I know it's always been competitive with Adidas and and so on. We all saw the Jordan movie and gave you a good sense of how that business works. How does Nike think about celebrity endorsers these days? It's still very, very important. Though that said, Nike does have some of the leading basketball endorsements like LeBron LeBron James, but it also just launched today. It's Caitlin Clark shoes. So you do see Nike introducing newness across celebrities and sports leaders. That said, others are doing it too now. So it's not just all about Nike. There are more sports, I guess, you know, endorsers as you would call it. So before, twenty years ago, it was Jordan. Right? That's all you kind of talked about. Today, there's so many more basketball players, so Nike doesn't have them all. Right. So is this the management team that can turn this thing around, Punam? We we think it's definitely better than the last, and we do think Elliott Hill has made some improvements in North America. The challenge is international right now, and it's still too early to tell if Nike can turn the needle on China. I think we'll have to wait and watch. They have a new executive there at home, and she is trying to make some changes, but we just don't know how that's tracking. And and that's one of the things we're looking to hear today. Has there been or is there activist activity, with this company? Not at the moment. Okay. It just seems like one of those companies where an activist could say, hey. This is an undervalued brand, underlevered brand. Let's bring it back to prominence. I mean, that's usually what happens in retail, but I think the story here is they're doing everything they should be doing to turn this business around. So what's left? Alright. There you go. Poonam Goyal, senior US ecommerce and retail analyst for Bloomberg Intelligence. Just looking at the income statement for Nike for their fiscal twenty seven year, 45 bill in revenue. That's down from 50,000,000,000, you know, four or five years ago. EBITDA, 3.7. So it's a EBITDA margin, you know, of... That's what you see in the retail space, low margins. And... But they've got free cash flow of $3,500,000,000. So solid their income statement here. They have the capital to invest in new product development, so we'll see how that plays out for them. Looking at the markets here, S and P is down 17, the Dow is down one ninety, and the Nasdaq down 80 points here. So a little bit of a sell off yields, come in a little bit here today, come in, almost four basis points on the ten year, 4.25. WTI crude oil higher by two and a half percent today, $92.67. We'll have more coming up. This is Bloomberg. Good morning.