Core Insights - Nike's CEO Elliott Hill is focused on returning the company to its sportswear roots, and initial efforts are showing positive results [1] - The recovery in China is slower than anticipated, impacting overall performance [1] Company Strategy - The leadership change last year was highly publicized, indicating a strategic shift within the company [1] - The emphasis on sportswear aligns with market trends and consumer preferences [1] Market Performance - The sluggish recovery in China poses challenges for Nike, suggesting potential risks in that key market [1] - The company's performance metrics will be closely monitored as the recovery progresses [1]

Market Performance - Market indexes experienced gains, with the Dow up +68 points, S&P 500 gaining +17 points, and Nasdaq increasing +107 points, while the Russell 2000 rose +2 points [2] - The market was influenced by a government shutdown threat and OPEC+'s decision to raise oil production by 137K barrels per day, leading to a -3.8% drop in WTI prices and a -2.5% decline in Exxon Mobil and BP stocks [1] Housing Market - Pending Home Sales rose by +4.0% in August, surpassing expectations and reversing a previous downward trend, aided by slightly easing mortgage rates [3] - Newly-built homes also saw an increase, with homebuilder stocks like Lennar, Pulte Home, and KB Home rising more than +1% due to pent-up demand [4] Cannabis Industry - The Trump administration is considering reclassifying cannabis from Schedule I to Schedule III, which could have significant implications for the industry, resulting in a +60% increase in Tilray's stock price [5] Economic Data Expectations - Upcoming economic data includes Case-Shiller Home Prices, Chicago Business Barometer, and Consumer Confidence, with expectations for slight increases and a narrowing in Consumer Confidence to 95.8 [6] - The Job Openings and Labor Turnover Survey (JOLTS) is expected to show a decrease in job openings to 7.1 million, the lowest since September 2024 [7] Company Earnings - Nike is set to report fiscal Q1 earnings, with expectations of a -60% year-over-year earnings decline and -4.95% revenue drop, despite having outperformed earnings expectations for eight consecutive quarters [8][9]

Now, let's stick with Nike, which will be happy to turn the calendar on September. It's the worst performing Dow component for this month. Joining me now is David Schwarz, Morning Star senior equity analyst.He calls Nike very undervalued. Uh, how long before we see the proof that it's undervalued, David. Yeah, it could be a couple quarters.Nike has really been struggling for the last two years really, and uh, its sales numbers have been weak. uh the company's been reporting sales declines which is very unus ...

Core Viewpoint - Nike is currently undervalued and is expected to show improvement in sales and performance by 2026, despite recent struggles and sales declines [1][2]. Company Performance - Nike has faced sales declines over the past two years, which is atypical for a company known for high growth [2]. - The company has launched new products, including a new line of running shoes and a collaboration with Skims, aiming to strengthen its position in the athleisure market [3]. Market Position - Despite losing some distribution to competitors like Hoka and On, Nike remains the largest player in the industry and is still the leader in sales among retailers [6][7]. - Retailers such as Foot Locker and Dick's Sporting Goods have a positive outlook on Nike's recent product releases, indicating strong retailer support [7]. Future Outlook - While immediate sales growth may not be evident, the company is positioning itself for a stronger performance in 2026, with significant marketing opportunities such as the upcoming World Cup [8]. - The sportswear industry is growing globally, with increasing interest in sportswear in developing nations, providing ample market opportunities for Nike and its competitors [9].

Key Takeaways from the Conference Call Industry Overview - The focus is on the **China/Hong Kong Consumer** sector within the **Asia Pacific** region [4][7]. Core Insights - Recent marketing trips were conducted in the **US, Europe, and Singapore**, engaging with over **70 accounts**. There is a noted light holding in the China consumer sector, but interest levels are improving [7]. - Investors are concerned about the **macro question** regarding the **consumption recovery trajectory** and the impact of policies. Stock-level interest is concentrated on a small group of companies, with varying focuses by region [7]. - **US investors** are particularly interested in **idiosyncratic opportunities**, such as **Pop Mart**, while **EU and Singapore investors** show broader interest across sub-categories [7]. - Most investors believe that the overall **fundamental recovery** will take time, and they recognize that **fund flow rotation** is a significant factor, with risks associated with laggard catch-up [7]. - Emerging investment angles include: 1. Brands with **pricing power** that can maintain a premium position in a trade-down environment. 2. Companies that will benefit when the **wealth effect** shifts [7]. Consumption Drivers - Potential supportive policies and benefiting categories are highlighted, with expectations of likely **subsidies in 2026** and a potential positive wealth effect driven by a **stock market rally** [7]. Company-Specific Insights - **Pop Mart** is a focal point of debate; while the market is captivated by social media trends, it is essential to consider its growth in **recurring customers** and its strong **IP/product offerings**. The supply/demand dynamics are also a current topic of interest [7]. - **Sportswear** demand trends are being analyzed, with stock picking among companies like **ANTA**, **Amer**, and **Li Ning** [7]. - **Laopu** is discussed in terms of its value proposition, long-term growth drivers, and competition with European luxury and domestic jewelry brands [7]. - The impact of tariffs on **OEM** players is examined, particularly those better positioned between suppliers for footwear and apparel, with **Shenzhou** noted for its sales drivers [7]. - **Giant Biogene** is recognized for its barriers to entry, demand longevity, and margin trends [7]. - **YUMC** is analyzed for the impact of delivery subsidies [7]. - Potential recovery is anticipated in the **beer and dairy** sectors, along with opportunities in **home appliances** driven by state subsidies [7]. Additional Considerations - The report emphasizes the importance of understanding the **supply/demand dynamics** and the competitive landscape within the consumer sector, particularly in light of changing consumer behaviors and economic conditions [7].

Group 1: Market Trends and Historical Context - The S&P 500 experienced a significant increase of over 1,200% from 1980 to the end of 1996, with an annualized return of 16.5% [3] - Following Greenspan's speech in December 1996, the S&P 500 more than doubled, achieving an annualized return of nearly 26% through the end of 1999, with notable annual gains of 33% in 1997, 28% in 1998, and 21% in 1999 [3][4] - The dot-com bubble burst in 2000, leading to a 50% decline in the S&P 500 and an over 80% drop in the Nasdaq [4] Group 2: Investment Philosophy and Ethical Considerations - The discussion highlights the challenges of predicting market behaviors and the unpredictability of human nature in investing [5] - Ethical considerations in investing are emphasized, questioning whether having ethical limits can help identify stocks with tail risks [6][8] - The case of Valeant Pharmaceuticals illustrates the potential pitfalls of ignoring ethical concerns, as the company faced significant distress despite its initial success [7][8] Group 3: Consumer Behavior and Brand Reputation - Arc'teryx faced backlash in China due to a controversial fireworks display that raised environmental and cultural concerns, leading to calls for a boycott [13][14] - The incident reflects a shift in consumer values, particularly among China's urban middle class, who are increasingly prioritizing environmental and social responsibility in their purchasing decisions [14][15] - The generational divide in values is highlighted, with younger consumers rejecting exploitative work cultures and demanding more ethical corporate behavior [15][17] Group 4: Economic Insights - The resilience of consumer spending in the US is largely driven by high-income groups, which account for approximately 50% of consumer spending, a significant increase from around 36% three decades ago [18][19] - High-income consumers currently have credit card debt levels below pre-pandemic trends, indicating their capacity to continue spending despite economic pressures [18]

Core Viewpoint - NIKE, Inc. is expected to report a significant decline in earnings per share (EPS) for the fiscal first quarter of 2026, reflecting ongoing challenges in the market and competition, particularly in Greater China [2][5]. Financial Performance - NIKE is projected to report a profit of $0.28 per share on a diluted basis for Q1 2026, down 60% from $0.70 per share in the same quarter last year [2]. - For the full fiscal year 2026, analysts expect an EPS of $1.68, which represents a 22.2% decrease from $2.16 in fiscal 2025 [3]. - However, EPS is anticipated to rebound significantly to $2.59 in fiscal 2027, marking a year-over-year increase of 54.2% [3]. Stock Performance - Over the past 52 weeks, NIKE's stock has underperformed, declining by 21.3%, while the S&P 500 Index has gained 15.4% [4]. - The stock has also lagged behind the Consumer Discretionary Select Sector SPDR Fund, which saw an 18.3% increase during the same period [4]. Market Challenges - NIKE's struggles are attributed to several factors, including a lack of innovation, reduced reliance on third-party sellers, and intense competition from domestic brands in Greater China, such as Anta and Li-Ning [5]. - U.S. tariffs have further complicated sourcing from China and other manufacturing hubs like Vietnam [5]. Analyst Sentiment - The consensus opinion among analysts is moderately bullish, with a "Moderate Buy" rating overall. Out of 36 analysts, 15 recommend a "Strong Buy," four suggest a "Moderate Buy," 15 give a "Hold," and two recommend a "Strong Sell" [7]. - The average analyst price target for NIKE is $80.56, indicating a potential upside of 16.3% from current levels [7].

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