Runaway from Nike, and Here is Why

Go figure, in a world of social media and real-time news streams on the installed iPhone base, a major product release could still come with a few surprises. I am talking about the new Nike Lebron X with Nike+ technology being made available this past weekend instead of September 29, according to reports. The sneaks have all the bells and whistles that this ‘80s kid who yearned for a pair Shaq Reebok Pumps back in the day could appreciate. Truthfully, the sneakers do everything but make a person fly. An early beneficiary of the release is my top 2012 pick Foot Locker (FL); it released the product in select stores in major markets. The emails are beginning to trickle in on whether to buy Nike's stock given the weekend build of hype. I reiterate my negative opinion on the stock. In fact, in a side by side comparison, I would rather own a pair of the new Lebron X+ than Nike's stock, and here is why: Nike is Living on its Name in the Investment Community Nike shares continue to be valued on a premium P/E multiple to the broader consumer discretionary sector on the view it's a “best in breed” entity. Fair point, the brand is a true global powerhouse. But, like Hulk Hogan, Nike is living on its name at the moment; the crowd is not appreciating the company for what it is …today. As a “best in breed” company along comes the responsibility to shareholders of driving margin expansion or at the very least, margin protection. By doing so, it shows the products are withstanding/thriving marketplace conditions and winning over competitors. The problem is that Nike continues to disappoint in terms of margin expansion and margin protection owing to higher product costs, volatile international economic conditions, new threats (Under Armour making strong strides in sneakers), and improper guidance of Street expectations on price increase realization. When the Market Ignores a Massive New Share Repo Plan…Red Flag Nike shares continued to be under pressure this week despite the announcement of a new $8 billion share repurchase plan. This reaction by the markets tells me the following: (1) focus of investors remains on the downside risk to near-term profit margins due to elevated inventories in China and potential disappointment on UK Olympics-related goods; and (2) management may have announced the plan to lessen the blow of another weak quarter to be released shortly.