The shoe maker and apparel supplier, Nike, Inc. (NKE) did not “Just Do It” on its last quarter. The stock slumped to as low as around $54 a share, on high volume, after reporting fiscal Q3 results. Not only were results mixed, the light outlook hurt shareholder confidence.
Nike’s resumption to growth will not happen in a straight line. The stock’s retracement back to around $56 following the sell-off. North America will continue to be Nike’s biggest challenge. Foreign exchange pressures are an uncontrollable external risk factor, too. Since forex is not something NKE can control, investors need to evaluate the company’s performance.
Sponsorship spend
Nike simply spends too much on sponsorships. It is a losing proposition to target too many markets through ineffective marketing. Teenagers need new sportswear apparel and Nike shoes each year. Nike should grow its moat in that market. By targeting the golf market, seniors and consumers over the age of 50 will buy golf shirts.
Share Buyback
Nike’s stock is between under-valued and fairly valued. At a P/E below 25x and low debt, Nike may afford to buy back its shares. At a time when competitors like Under Armour, Inc. (UA) are struggling, boosting shareholder return, cutting costs, especially in marketing, and investing in the business will pay off in the long-term.
