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Nike earnings show “strength the consumer willing to spend” on athletic wear, analyst says

Tigress Financial Partners CIO Ivan Feinseth analyzes Nike's Q4 earnings report and its announced share buyback program, the impact China's COVID lockdowns had on retail supply chains, and how the athletic apparel brand manages its inventories.

Video transcript

- OK, Nike reporting better than expected earnings for its fiscal fourth quarter. Tigress Financial's Ivan Feinseth joins us now with the results. Ivan, big picture, the four out of five quarters, they have beat on earnings per share on revenue. What's your big takeaway?

IVAN FEINSETH: Well, first of all, it's mostly as expected, some headwinds in China. But the overall strategy of focusing on large accounts, pulling back from some small accounts, and the company focusing on their own direct-to-consumer sales continues to work. And we're seeing the results.

And again, we're seeing confidence in the outlook with the announcement of a new $18 billion share repurchase. So companies will continue to return cash share to shareholders as they have confidence in cash flow and have more than enough cash to meet their other needs, as far as capital investment. And we see a great picture here, especially the increased confidence in the outlook, as indicated by the new share repurchase authorization.

- Ivan, we know China is critical here for Nike's success. Taking a look at those numbers, 1.56 billion in revenue during the quarter, that's down 19% year over year, slightly missing the street's expectations. Yet, it seems like investors are able to shrug that off. Why?

IVAN FEINSETH: Well, because China has a zero COVID tolerance policy. And the minute they start to get an outbreak, they go to shutdowns. And we've seen, over the past three months, rolling 100% lockdowns, where the factories are closed. Consumers are restricted to stay at home and are not even allowed to go out.

So I mean, this has a-- China is the-- is the world's largest market for everybody. And when those markets shut down, it is impactful. However, strength in other areas, strength in Europe and America, has overcome that. And when their consumer is actually shut down from participating in retail, it eventually comes back. So this is only sales, in my view, that will get pushed out to the future as China, we see these-- also, these rolling reopens-- reopenings.

- So Ivan, is it fair to say that you think the worst is behind them, at least when it comes to some of the deterioration in demand that we've seen from China, because of the lockdowns you were just talking about?

IVAN FEINSETH: Yes. Because the overall picture continues to highlight the strength in the consumer willing to spend on athletic apparel and athletic footwear. And we've seen that with Lululemon, especially high-end apparel, high-end athletic apparel and footwear. So the market is there for Nike. Nike has extremely strong brand equity that resonates with the consumer, and all of their strategies and their investments in further penetrating the markets that they continue to focus on are working.

- I want to ask you about inventory. it's obviously something we've seen a lot of retailers struggle with. What is your-- what are you watching there in that space for Nike? And can they withstand some of the losses that some of these other retailers have struggled with?

IVAN FEINSETH: Well, I think Nike's pretty well capitalized. They're the dominant com-- one of the-- the, if not one of the dominant companies in athletic apparel and footwear. I like when companies have inventory, because more-- there's a bigger opportunity to lose sales from not having the inventory than any issue with excess inventory. And they do manage their inventory well and price and merchandise well.

So I don't think inventory is an issue. I only think the problem in the overall shutdown that has been caused by the pandemic has impacted everybody's inventory. But Nike is an innovative company and seems to have managed their supply chain well, to have at least enough inventory for overall-- to meet overall demand.

And demand, the most important thing is demand. You can always manufacture more products. You cannot manufacture demand.

- And there is an enormous demand for athletic apparel coming out of COVID. And you look at the stock price. It was trading $179 in November. And even with a slight pop after hours, 111. Does this look like a stock that's on sale for you, Ivan?

IVAN FEINSETH: Absolutely. I mean, the market has had a tough time this year. So far, the first half of 2022, we've seen the worst down sell-off since actually, the first half of 1970. So between the war in Ukraine, the pandemic, the rise in oil prices-- which, by the way, the biggest concern is the increase in oil prices. Because that does affect consumer discretionary spending.

It also does affect input costs to a lot of what Nike makes. But even with the almost doubling of gasoline in a little over a year, demand overall remains strong. So I think that's a positive sign.

- Ivan Feinseth, always great to talk with you, from Tigress Financial Partners, chief investment officer. Thanks so much. Again, Nike shares moving to the upside here in after-hours trading.