Nike's brand strength is much higher now, despite rev miss: analyst

Yahoo Finance’s Jen Rogers, Brian CHeung, and Reggie Wade speak with Williams Trading Senior Equity Analyst, Sam Poser, about Nike’s latest earnings report.

Video Transcript

JEN ROGERS: So stock of the day, at least one of them, has to be Nike. I mean, I haven't worn real shoes in a year. It's all about sneakers. But the stock right now is falling, second worst performer on the Dow. It's off almost 4%. I want to bring in Sam Poser, Williams Trading senior equity analyst, and Yahoo Finance his own Reggie Wade to talk about what we're seeing in Nike.

Sam, let's start with you. So there's a lot of fingers being pointed at what's happening at the ports and also at Europe. Do you have any concerns over the supply chain, or is this something that's going to be worked out eventually?

SAM POSER: This is going to be worked out sooner than later. The demand for Nike product, which was noticeable by their billion-dollar US digital business is huge. And I think it's going to take some time for them to catch up on the supply. But I think a lot of that's going to be demand-driven because not only is the inventory in Nike's warehouses down around 20% right now, inventory in the US marketplace is about as clean as we've ever seen it.

And our retail contacts are telling us, anything they get in, they're just selling out of immediately. So we think that's going to continue and will take some time to catch up. But as more inventory shows up, that's just going to make their business stronger and the margins stronger. I mean, we really think that, in their guidance, there's probably a little bit of top line there, upside. But we think there's a lot of gross margin upside there.

REGGIE WADE: Sam, Reggie Wade here. Whenever a company has a miss, you hear, we're fine, we're fine. And then you look at the numbers and see if it backs it up. When Nike Direct grew 15% and digital sales increased 59% and they had double-digit increases in digital in all geographies, how much longer do you think that Nike digital will carry the company?

SAM POSER: Well, I think for a while because really the story here is brand equity, brand sanctity. And that's what they live for. And that's what makes them stronger. So if all things being equal, if you think that Nike was a wholesale-only brand, if they wanted to maintain the same revenue, they could sell half as many units to do that same business if they did it all directly, digital or in stores.

And so that evolution over there gives them more control and actually allows them to have less unit growth than sales growth. And that's why I think there's just a lot of room here. Plus, the pandemic really, I believe, changed the way consumers shop. And Nike, using the data that they talked about on yesterday's call, really is arguably the best grassroots marketing company out there.

And they know what you're doing today. And they know what I'm doing today. And they are getting more and more personalized at that, which I believe will really continue to drive opportunities in both their direct digital business and their direct brick and mortar business.

REGGIE WADE: Sam, we've seen big growth in greater China, to up 42% on a currency-neutral basis. What's the game plan going forward with China? I know that was one of the first areas that opened up after the pandemic started. So what's the game plan there?

SAM POSER: I mean, I think, again, it's all about getting to know their customers better and adding more customers. As big as the business is there, it's still not as large as it is in the United States. And there's just huge opportunities there. So I think, again, it's continuing to build off the personalized experience of the Nike brand and then continuing to innovate with product.

And again, I think that the overall strength of the Nike brand is much better now than it was prior to the pandemic, even though it isn't showing up that way in revenue just yet.

BRIAN CHEUNG: Hey, Sam. Brian Cheung here. I've got some shoes back there. They're not all Nikes. I do have, I think, a new pair New Balances back there. But I wanted to ask you about the competition in the space. You kind of alluded to that. But it's interesting to see competitors like Adidas, for example, having struggled with their Reebok brand. They ultimately cut the line on that there. So is Nike running away with the competition here? Or is there the risk that there could be smaller players in the space, athleisure, that could cut into Nike's market share?

SAM POSER: I mean, I think we're getting product confused with brand. And every brand, including Reebok, always has good items. But not every product has a brand that people can count on and know and has a compelling point of view. And keeping the supply below the demand, marketing to the right people, and so on really keeps a lot of these brands at bay.

And again, there is always the opportunity for brands to do well within it. But I think Nike would have to make a huge mistake to really have anything put them at risk at all right now.

REGGIE WADE: Sam, I'd be remiss if I didn't ask about the sneakers. You know I'm a sneaky guy. Brian's a sneaker guy. What kind of silhouettes do you think will do well for Nike coming up in the next quarter?

SAM POSER: Thank you for that. I mean, I think basketball continues to be very strong. I mean, what we're hearing is Dunks, Air Force, Air Force One, and Jordan Ones. They're not going anywhere. They're bringing back some new old Prestos and stuff like that. And there's a lot of product out there. There's a lot of newness.

Again, I think it's the whole package. It's the good product with the authentic story to back it up. And that makes it successful. I think that people just want to be comfortable. So when you talk about athleisure trend, I think people are still going to specifically what they want. They aren't going, I need a new pair of sneakers. They're saying, I want a new pair of Air Force Ones or I want a new pair of Jordan Ones. And I think that's what's here to stay. And I think that's what's sort of unappreciated in general about how the consumer has changed the way they're doing things these days.

BRIAN CHEUNG: All right. Well, I want a new pair of Air Jordan Ones and a new pair of Air Prestos. But we'll see if we can make that happen. Sam Poser, Williams trading senior equity analyst in addition to Yahoo Finance's own Reggie Wade. Thanks so much.