Forget a grabby, depressing Intel (INTC) pre-announcement; Nike's (NKE) latest earnings gave us the most significant glimpse into the approaching earnings season.
On that score, I would have to say the earnings season is looking both bleak and bright. How does that even make any sense? It does. Nike had some seriously positive things happen to it over the past three months that are hard to overlook. But one almost has to overlook them, because the things that went wrong are worrying in the context of present equity valuations.
Here are some things I learned from the company in complete random order:
- "The last three months were a more volatile macro environment." Sort of sounds consistent with what the Federal Reserve uttered this week, no? In my view, it highlights not everything in the global economy is fine and dandy as a result of the persistence of very accommodative monetary policy. Choose your investments carefully, friends, monetary policy didn't help the quarter at Nike (it may have hurt actually).
- "The expectations of consumers are changing rapidly." Darn right they are, Nike, people want technology to touch every single product and experience that comprises their daily lives. Nice case made by Nike to continue to stay long tech -- and Apple (AAPL) -- I think, as well as Under Armour (UA). This is a personal favorite of mine that is interestingly out-executing Nike on the digital front via acquisitions. Nike gave us no update on its digital plans on Thursday.
- The upper income households around the globe can't get enough of Nike's premium running shoes and basketball sneakers, backed by stars Kobe Bryant, LeBron James and Kyrie Irving. I think that's a nice signal on upcoming results from American Express (AXP), in large part fueled by expanding household wealth due to home price appreciation and stock price gains.
- The strong dollar hammered Nike's future orders and to a lesser extent, it's initial FY16 EPS guidance. Nike's reported future orders rose 2%, or up 11% constant currency. I see this and immediately think that not only are analysts right in continuing to adjust their forward EPS projections for this year, but wonder whether they have lowered them enough. And, what is taking them so long to drop 2016 estimates? I think investors are badly misreading the impact of the dollar's strength, and will be burned come April reporting season after buying into sucker's rallies.
- If I was Dick's Sporting Goods (DKS), Finish Line (FINL), and Foot Locker (FL), I would be a little concerned about Nike's advances with its retail store network. Namely, the network continues to grow and thrive, giving consumers a better representation of the brand than found in "wholesale" doors. It doesn't help that the aforementioned retailers are already very reliant on Nike for sales and profits. For example, Finish Line's annual sales are 40% hinged on running shoes, a category dominated by Nike.
- China's economy is not crashing, so simmer down after reading that dreadful home price report from the country a couple days ago. Nike's sales in China surged 22% in the quarter in spite of it being less promotional and the government's crackdown on gifts.
- I would be concerned about near-term spending trends at mid-tier department stores J.C. Penney (JCP) and Kohl's (KSS). Nike noted sales weakness for some of its more affordably priced running shoes, which are on display at mid-tier department stores. I fancy that the middle income consumer continues to be challenged by stagnant incomes. On the contrary, lower income households are just happy to have found a new job, and are back to spending on things they couldn't buy before. Upper-income households continue to do what they do, power the U.S. economy.
I would not be a buyer of Nike here. Solid quarter indeed. But I would rather play footwear's sales strength through the advancing Under Armour (making great strides in running and basketball sneakers) or transforming Foot Locker.
TheStreet's March Madness Open House Has Begun!
Get an all-access pass now to see everything TheStreet has to offer.