4. Nike Inc (NYSE:NKE)
Number of Hedge Fund Investors: 75
Bryn Talkington, managing partner at Requisite Capital Management, explained earlier in April on CNBC why she bought Nike Inc (NYSE:NKE) shares despite the company being hammered by tariff-related uncertainties. The fund manager said at the time that she believed the US would reconsider its tariffs against Vietnam and criticized President Trump’s policy against the Asian country:
“We have to decide as a country what we actually want to manufacture here and what we actually want to manufacture in great countries like Vietnam. Nike, Restoration Hardware, Wayfair—all moved much of their manufacturing out of China during Trump’s first presidency into Vietnam. Vietnam is happy to make these. Nike pays these people probably like $5,000 or $6,000 a year; they’re happy to make them. And we do not want to export those jobs. My sense is there is going to be a reckoning between the US and Vietnam, and actually I think 20 minutes ago Trump posted on his Truth Social that he just had a conversation with the general secretary of Vietnam and they want to bring down their tariffs, which once again are 5%, not 90. And so to me it’s like a beaten-up name. I just think it’s overdone. I think the stock could trade back up to $70 pretty quickly because we do not want to import these types of manufacturing to America. No Americans want those jobs.”
Guinness Global Innovators stated the following regarding NIKE, Inc. (NYSE:NKE) in its Q4 2024 investor letter:
“We first purchased NIKE, Inc. (NYSE:NKE) in November 2016, delivering a total return of c.60% (in USD terms) over the holding period (vs MSCI World +147%). The stock outperformed strongly in first five years of the holding period, particularly during the pandemic, when global lockdowns amplified the success from the firm’s decision to focus on Direct-To-Consumer (DTC) and ‘Online’ while moving away from wholesale partners. Since then, however, it appears that these pandemic-era benefits served to mask deeper underlying issues with the strategy – in particular a declining level of competitiveness, despite the benefits to profitability. Results in July brought many of these concerns to the forefront. After no growth in FY24 and guidance for negative growth in FY25, the reacceleration of revenues investors had been patiently awaiting seemed to have been pushed still further out. The slowdown had previously been attributed to a weak economic backdrop and thus a weak consumer. Although this argument carries weight, not only do these headwinds appear deeper than expected, but there are now questions around competitiveness, in light of inroads made by competitors such as Adidas, Lululemon and On Running, and the multi-year decline in market share for Nike. In all likelihood, these firms gained share as a direct result of Nike cancelling relationships with wholesalers, which opened up shelf space for challenger brands. A marked slowdown in the ‘Lifestyle’ portfolio (i.e. nonperformance-wear, which makes up c.60% of sales) has spurred a rethink in strategy, with a complete refresh of the portfolio set to be completed by the end of FY25 (May 2025), with significant narrowing of the range underway. This quarter appeared to be a hard reset for Nike – a recognition that the current portfolio is not going to deliver the required growth. Its plan to achieve is is a refresh and refocus towards innovation (alongside greater brand and marketing investment). The foundations for Nike remain strong: it retains number-one market share across major markets, its brand equity is undoubtedly strong (even if diminished), and it has a robust supply and distribution network with strong retailer relationships and broad category exposure – all while maintaining a very strong balance sheet. Not only this, but Nike has proved over its history the ability to drive sales growth through innovation. While we acknowledge it may be able to repeat this cycle, we see increased risk to the near-to-mid term outlook and note that with a greater competitive threat and new, innovative competition, this task is all the harder to achieve. Management commentary appears to suggest that the reinvigoration of growth is not on the near-term horizon, and macro trends in the meantime are not favourable. Consumer trends change often, and Nike has often repositioned to capture them, but relying on innovation for growth appears to be a difficult sell when there is no guarantee this will flow through to real earnings. We view the firm’s problems as more than a weakening consumer environment, but a diminished ability to compete with peers, and a misstep in strategy. This could be a ‘multi-year’ reset for the firm, with no quick rebound in earnings. To summarise, although we do not rule out success in Nike’s new strategy, we have lost confidence that the stock will be able to reinvigorate growth back into the product portfolio in a desired time frame, and therefore believe there are better opportunities elsewhere.”
