If You're STILL a Nike Shareholder After Earnings… Get Ready! – Transcript

00:00Nike has just crashed to a 12-year low, down about 81% from its all-time high and nearly 50% this year alone. And on its latest earnings call, management did something absolutely brutal. It basically told investors the pain is not over and that parts of the business are going to get worse before they get better. But here's a twist almost nobody's talking about. One entire half

00:27of Nike is quietly thriving right now. So is this finally the bottom for a legendary brand or is it a falling knife that keeps on cutting deeper? Let's dig in and find out. So let's start with just how staggering this collapse has been. Back in November of 2021, Nike hit an all-time high of about $180 per share. Today, as of the recording right now, it's sitting under $33 per share.

00:54That is over an 80% landslide, a five-year destruction of one of the most famous and reliable brands on the entire planet. To show you the size of the hole, Nike would have to rise about 424% from here just to get back to its old all-time high. And get this, Nike was just kicked out of the S&P 100, the index of America's 100 biggest companies

01:20after 18 years in it. It has lost roughly $200 billion in value from its peak. If you'd bought right after the $180 top, you'd have lost about 29% per year, every single year for five straight years, turning $10,000 into less than $2,000.

01:40And even counting the dividends Nike's paid along the way, you'd still be down over 75%. And there's a brutal lesson hiding in this chart. Back in mid-2024, Nike had already fallen about 50% to around $90 per share. Tons of people said it's already cut in half, surely the worst is over. But since then, it has fallen another 60%.

02:06So, never ever assume the stock is done falling just because it's down over 50%. Peter Lynch has said this repeatedly, just because a stock price has fallen does not mean that it's now attractive. So, what happened to latest earnings report that knocked the stock down even further? Honestly, guys, the actual quarter wasn't a total disaster. Yes, revenue fell 4%, but Nike still earned about 48 cents a share, and its profit

02:31margins actually improved just a smidge. But the real shock was the forecast. Management now expects sales to fall by high single digits this year, and earnings of just $1.15 to $1.35 a share.

02:45For comparison, Wall Street had been hoping for almost $1.70 per share. That is a massive miss on expectations. To be fair, Nike still made $712 million in profit, and has kept cutting costs. So, the cleanup is doing something.

03:03The shock was mostly about the future. Investors were desperately hoping that Nike had finally hit rock bottom. Instead, the message was not yet, and this recovery is going to take longer and cost more than we thought.

03:17That's exactly why the stock fell another 3.6% the very next day. Now, here's the most important thing to understand about Nike right now, and it's the twist that I mentioned earlier. There really are two different Nikes hiding inside one company.

03:32One that's healthy, and one that's suffering. So, first, the healthy Nike. It's sports performance business. Running is growing double digits. So are football, tennis, and golf. CEO Elliott Hill's entire plan, refocusing Nike back on actual sports, is genuinely working here. North America even grew 2% with its wholesale business up 9% following a previous quarter

03:57growth of 14%. Nike's entire performance business is now about $16 billion a year and still growing. And if you stripped out the China mess, it would have grown low double digits. So, the core athletic strategy is not failing. Guys, this is why the details are so important to understand.

04:16But now the worst half of Nike, and this is the real problem. Three big pieces are falling hard. First one, Nike Sportswear, the casual lifestyle sneakers, which is almost half of the entire company, and it dropped by low double digits. Hill actually admitted that Nike had created a sea of sameness making too many look-alike shoes. In fact, Nike deliberately cut its wildly

04:40popular Dunk sneaker by nearly half, which by itself blew a $200 million hole in quarterly sales. And the fix is to split the giant category into two smaller, more targeted groups. Now, the second issue, the Jordan brand, down mid-teens. And here, Nike is cutting back on purpose because it flooded the market with too many retro releases and killed the scarcity that made Jordans

05:07special in the first place. And the third issue, China, which we'll get to in a second, is in a free fall. So, the painful truth is, Nike's broken businesses are currently much bigger than its recovering ones. That's why the whole company still looks like it's shrinking even while parts of it are growing and thriving.

05:26So, what is the market saying right now? Well, the story has quietly shifted. A year ago, it was a hopeful, we're fixing Nike. Today, it's more like, some parts are working, but not the whole company.

05:38Now, Hill says the comeback is ongoing, happening one sport, one city, one country at a time. But analysts are now asking a very fair question. Why is this fix taking so long?

05:51Management's answer is that the first phase repaired the foundation, the culture, the sport focus, the wholesale relationships, and only now do the harder fixes begin. And China specifically is the scariest part. Sales there have crashed 26% the ninth quarter in a row of declines, and management openly expects it to get even worse this year. Nike's share of

06:17the Chinese market has tumbled from about 27% down to 16% as local brands like Anta ate its lunch. Nike also just launched a new cost-cutting plan called Pace, aiming for about $2.5 billion in savings, though most of that won't show up until 2029 and 2030. And they also added a luxury brand expert, Alexandre Arnault from the family behind LVMH,

06:44Louis Vuitton. They added him to the board. And the next big moment is a November investor day, where management has promised to reveal the next phase of its plan. So, the entire debate boils down to one thing. Is this pain temporary, or is Nike permanently weaker than it used to be? So, a very, very obvious question to ask is, does Nike still have a moat? That special protective advantage over its competitors.

07:11The answer is yes, but it's definitely cracking. On the plus side, Nike is still one of the most recognizable brands on Earth, still does over 40 billion in sales a year, still has an army of top athletes, and it still dominates serious sports like running and basketball. They currently endorse over 70% of the NBA basketball players out there. That kind of thing does not vanish overnight, but if they don't address it aggressively, it could be a

07:39long-term problem that's harder to turn around. I still feel, and I've said this in many videos, that if you ask 100 random people to name the most popular sports brand, Nike would probably be the winning response in those 100.

07:54But here's the crack. With shoes, there's basically zero cost to switch. You can walk out, buy Hokas on or Adidas tomorrow, no problem at all. So, Nike's moat only holds up if people want Nike more than the others. And the warning signs are flashing. It's China market share just got cut nearly in half. It's losing young superstars to competitors like Mbappé to On, Yamal to Adidas, even

08:20the Premier League match ball deal to Puma. And even its own CEO admits that its lifestyle shoes became repetitive. So, is Nike's moat truly damaged, or was it just badly managed for a few years? Phil is betting that it's fixable. The market right now, not so sure. One hopeful sign, though, Nike's flagship Shanghai store has now grown for 10 months straight using its new sport-first approach. Proof that the

08:47fix can work when it's done right. So, guys, let's lay out both sides, business only. First, the bull case. Bull case number one, the performance turnaround is real. The sports business that we talked about is growing double digits, and that's not just a promise. It's showing up in the numbers right now. If that keeps on compounding while the suffering parts eventually stabilize, the whole company could suddenly flip back to growing.

09:14Bull case number two, Nike is finally willing to sacrifice short-term sales for long-term brand health. Cutting Dunks, cutting Jordan retros, cleaning up its messy China sales, all of that hurts revenue today.

09:28But scarcity and premium pricing are exactly what made Nike special in the first place, and a management team willing to take the pain to rebuild that is doing the right long-term thing. Bull case number three, there are real visible wins. North America's growing.

09:45Wholesale partners are coming back. Profit margins ticked up, costs came down, and new products like Vemero, the studio fleece line, and Caitlin Clark's brand new signature shoe are genuine hits. This isn't just talk, guys. Some of it is clearly working. But, of course, the bears have serious counterpoints. Bear case number one, China, the largest company in the country in the world, might not be a

10:11temporary slump at all. It might be permanent damage. If Nike can't win China back, once one of its most profitable markets, its long-term earning power could be permanently lower than investors hoped.

10:25One report even projects Nike's China share could be sliding towards 11% by the end of next year. Bear case number two, Nike's biggest businesses are still the broken ones. Yes, performance is growing, but the two biggest pieces, sportswear and Jordan, are still shrinking. After almost two years of turnaround work, the three biggest problems are still the three biggest problems. That's the toughest knock on management. And bear