The long knives were out for Trifecta Stocks portfolio holding Nike (NKE) and it really didn't matter what the company had to say. A combination of a 1% gain in North American futures orders -- considered to be the best indicator of future growth -- and a 200 basis point decline in gross margins did the company's stock in despite tremendous growth in China and Europe.
It's a tough comeuppance for a senior growth company that has grown its revenues from $16 billion in 2007 to $32 billion today, and not just because people saw it coming. There has been a huge amount of downbeat chatter about the slowing of North America in the last few months.
But the hidden culprit, the return of Adidas (ADDYY) to the fore, never even came up; the company told the same rosy story as if all were well, and that, more than anything else, rankled the bulls on the stock who were looking for a short-term short cover pop.
It was weirdly reminiscent of the U.S. decline below 5% for Action Alerts PLUS charity portfolio holding Starbucks (SBUX) , another rarity; yet, unlike Nike, CEO Howard Schultz was willing to call it disappointing. If you don't hear mea culpa off a big miss -- the cognoscenti was looking for plus 5% -- then you tend not to think the company can turn its fortunes any time soon.
Worse, when you hear explanations that offer one-time reasons for the decline in gross margins, instead of newfound competition, as well as a dismissal of futures orders as an accurate measure of the future, you get downright worried, despite the fabulous Chinese and European numbers.
These are uncharted times not just for Nike but for its analyst acolytes who have, deservedly, always found reasons to buttress staying long the shares of this terrific company. While Adidas wasn't fingered as part of the problem, we did get some subtle questions on the call about whether athletic apparel had approached a slowdown mode.
I wish the analysts had forced an athleisure slowdown mention on the call, but I think that you would have heard that Nike is not about that, it's about sports performance and innovation, they go hand and hand and everything else follows. They've always started with the athlete, and there are 7 billion athletes, so the total addressable market's still up for grabs.
Here's the issue I have with that: we are in some new era, when millennials and younger people may not buy into performance in this country as much as they once have. Sure, Jordan still sells, arguably better than ever, and the Tyrie, KD and Lebron are hitting numbers.
However, something's not resonating in the U.S. to explain the slowdown, and the refusal to admit that there is one makes it a heck of a lot harder to figure out.
Is the business going away from Nike? Is it going to Growth Seeker portfolio name Under Armour (UA) ? To Adidas? Is it going toward the Stan Smith tennis shoe of Adidas, which, I think, is barely in the performance footwear category and is certainly not at the forefront of innovation, Nike's real hallmark?
Sure, there were some excellent call-outs on the exchange. I like what I heard again about Flex and quick-to-market shoes. I keep warming up to the HP Inc story, because of the emergence of industrial 3D printing. Nike's involvement with the watch, facilitated through Apple (AAPL) CEO Time Cook, who is on the board of Nike, resonates.
Still, though, I struggle to come up with reasons to buy it right here at 23x earnings when I can pick up the sportswear panoply at Foot Locker (FL) 14x earnings. That's clearly the play here, not Nike.
On a broader issue, I searched for a takeaway for Lululemon Athletica (LULU) , which is now stylistically run by the great Lee Holman, late of Nike, who is pioneering a broadening of that company's efforts.
The fact that I don't find one, I think, is actually bullish for LULU: it confirms that the apparel company is simply not a competitor but is going for a whole new brand of non-performance, based on yoga with a sidelight of spinning and casual clothing. The gritty performance vs. the holistic mindful athleisure standard's more in play.
Suffice it to say, until Nike admits of the slowdown, you can't solve the slowdown. Foot Locker encompasses the ultimate win if there is no slowdown as Nike contends, and its weakness is a better investment than a hobbled but unperturbed Nike when, alas, it should be perturbed.