Nike's (NKE) Turnaround Story Faces New Test into Earnings

0:00We're back on Morning Trade Live. We'll be watching Nike after the closing bell when the Athlete Jai had reports earnings after the close. Analysts are expecting earnings per share of 29 cents on revenue with more than $11.2 billion for this quarter. Nike is down nearly 20% this year and hit an eight year low during Monday session. It's been a tough time for Nike. So let's see what they say this afternoon. As a bit of a preview, we're going inside out on Nike ahead of these earnings. So joining us now is Tom Nickuch, who's the managing director, equity research over at Needham. So I see you have a $58 price target. No rating here. Just walk us through what you're expecting to hear from this company. Yes, I think thanks for having me on and just a quick clarification. I have a hold reading on Nike and need of a company does not have price targets on all dreaded slacks. So I don't have a price target on Nike at the moment. Look, I think fundamentally things have been

1:00very tough for Nike. They've got the competitive environment is the toughest I can ever remember it being covering this space for many, many years. There's been much more discounting and there hasn't been enough product innovation from Nike to offset some of these headwinds. Right. Thanks for the clarification on that price target as well, Tom. Just wondering what metrics are going to be really important to watch out for? Because I know, you know, when you think about this name, it's all about that turnaround story, wanting to see progress on that. But no doubt margins are going to be closely scrutinized, particularly given some of the promotional activity that we've seen during the month of February. And I know that you have even highlighted that maybe that's been aided by some of the tax reach funds. But I also know that China has been a big focus for this company. So just unpack some of the things that you're going to be looking out for. Yeah. So I think some of the key things to look out for, number one, North America. And specifically,

2:06what is the composition of the growth in North America between wholesale and direct consumer? The last couple of quarters, they have seen big declines in the direct consumer business, and very, very big increases in the wholesale channel. That leads to some concerns that they're putting too much product out into the wholesale channel, which will be problematic down the road, will lead to more discounting, et cetera, et cetera. So I think what you would like to see, if you were positive on Nike, would be a more equitable split in North America between the two channels. China will be a focal point. That has been a very, very difficult market for them for many, many years now. And so if you could get any kind of indication that they're coming out of the rut in China, that'll be big. And then obviously, you know, gross margin. There are a lot of moving pieces on gross margin. You've got tariffs, you've got discounting, et cetera.

3:09But if you could see a light at the end of the tunnel on gross margin, then, you know, maybe some people who are bullish on the name might find something to get excited about. Personally, you know, I think we're still in wait and see, Moon. So guys are the numbers. Obviously, a big part of this is going to be about the narrative and obviously how they're guiding the market and moving forward as well. So given we've heard from a number of retailers who've been quite conservative around the outlook coming into 2026 without stating the obvious as to why, what can we expect to hear from them? What sort of language should we be kind of tuning into? You know, I would imagine that they will sound cautious on the external environment. Obviously, there's a lot of things going on and things that are happening that are outside of the the company's control, oil prices, the other war in Iran, et cetera. But that they are making

4:11progress on their internal factors and the things that are in their control. So I think we're sort of going to find ourselves in this situation where, you know, I don't think that there's going to be a very clear path forward from here. I think, you know, we're going to hear more of the, just, hey, we're, you know, we're trying to fix our problems. We're doing what we can. We're, you know, trying to come up with product innovation. We're trying to engage with consumer, et cetera, et cetera. But I'm not sure that we're going to get many very solid proof points, especially given the challenging macro environment. Yeah. Okay. We'll be listening out for that. Tom always appreciated. Thanks so much for the preview and the look ahead to Nike earnings later on today. That is Tom Nick, who's the managing director, equity researcher at Needham. Let's trade Nike now with Tom White host of FastMarket. So obviously, the bar has been low for this company. We're watching this turn around plan and any progress there, margins, China. Just walk us through an example trade for Nike Tom.

5:16Yeah, it seems like every time one side of their business is doing well, the other kind of balters here, China's been lagging, margins have been compressing. So the bar is low, as you mentioned. I mean, this stock is down 70% from all time highs that we saw just a few years ago here. So, yeah, it seems like everybody's waiting for that turn around from Elliot Hill, the new CEO. So, yeah, the option market's pricing in about a plus or minus 7.5% one day move either way in the shares with the stock near nine-year lows here that it hit yesterday. So I looked at a strategy that takes advantage of yield. The dividend yield on Nike is about nearly 3.2%. So that creates some yield. So I looked at a cover call strategy. If you maybe want to own the shares at nine-year lows with the expectations, it's at least going to consolidate, maybe go a little bit higher, but then you can also create yield by using a cover call because you're selling an out of the money call to the upside here. So I went for every hundred shares to stock you buy. You sell an upside call. I looked at

6:21the April 17th monthly options expire in two and a half weeks and sold the 55 strike call. It aligns about with that one standard deviation move. You're going to pay a debit. I've got a debit of about $50.70. So you're buying the shares at a discount because you're selling that out of the money call. It limits your upside. Don't get me wrong on that side of it, but your break even is also that price that you pay. So if you paid $50.70, that takes your break even down there. So you've got that cushion to the downside. And as you get closer to expiration over the next 17 days, you can adjust a roll that short option repeatedly that creates credits. Lower your break even increases potential profitability on that. You might get your shares taken away if the stock pops off of these nine years lows. But yeah, this might be the way to do it because you're looking at creating yield from not only owning the shares, but also from selling out of the money calls repeatedly against your long stock on this type of strategy. Okay, we'll be watching all eyes on the earnings

7:22that there's afternoon. Thanks so much for that Tom. I'll catch you up, catch up with you later on your show.