Fears surrounding sales of its famed basketball sneakers has weighed in Nike (NKE) in 2016. Next week, the iconic sports apparel company will unveil fiscal second quarter financial results, and analysts will be looking closely for signs that Nike continued to lose share to rivals Under Armour (UA) and Adidas (ADDYY).Last week, Barron’s cautioned investors against buying the stock on the heels of a downgrade by Cowen’s John Kernan. But today, a string of analysts have argued that recent pressures facing Nike are temporary and the stock offers an attractive opportunity.
If you have ever considered grabbing shares of stock in Nike, this would be the time. You could probably wait until Trump gets into office and the stock hits about 45 on concerns that the increased tariffs and duties will slow Nike’s profitability, but I don’t think it will sink that low. I wrote this article a few weeks ago to show the reach of Nike’s manufacturing: Nike Sustainability – Interactive Map On this map Nike currently has 62 locations in the US that manufacturers it’s apparel, equipment and footwear.
It should be noted that footwear is where the problem lies in the future for Nike with Trump moving into the White House, but (and here comes my beating of the same drum) Nike’s move to DTC has expanded so quickly and thoroughly that the increase in pricing to replace the cash left behind to the resale market has already offset costs for Nike. The last 5 years have seen an inflation on Nike’s prices that is far beyond what costs could increase to under Trump’s increase in tariffs. Is that clear?
Nike makes footwear abroad. The average costs with everything factored in, sponsorships, advertising, shipping, is about 45.00. Under Trump that price would probably move the needle to 50.00. When you consider shoes like the Air Jordan retro line that has already been developed and doesn’t require any R&D or tech developments and then you factor in that the majority of Nike’s footwear is based on existing materials, they can do what New Balance does: Assemble footwear in the USA. According to NPD’s Matt Powell, the tariffs will primarily affect the uppers and the materials that make up the shoe. If Nike begins to implement more Flyknit and 3D Printing they can import and build here, but I’m not solid on that point.
What I do know is that Nike has increased pricing on footwear and they have enough room that they could sustain the duties under their current pricing structure even with an increase on imports. Read this source article for a more in depth discussion and let’s talk about this. Leave a comment on what you think a Trump presidency means for Nike and the footwear industry.