Nike shares are plummeting following the firm's latest earnings report. Is this an overreaction? Is it a value trap? Is it an opportunity to buy? Let's go ahead and find out. Welcome to the three-minute appeal. My name is David.

Let's go ahead and break down at Nike Inc. All right, so what I'm going to do here is share my screen and walk through a couple of the things that we here at WSO have been thinking about. So first and foremost, I want to go over some basic information with Nike. After today, their market cap is sitting around $141 billion. But the important things that we want to focus on in this line item is, of course, this year over year growth column. So revenue grew decently strongly until you look at the growth in Cogs down here. We see that expanded at 14.64%. That's why you're seeing these weakening margins right here. And the worst of all being this weakened net margin down nearly a quarter okay so this thing

is falling like a rock obviously net margins are doing well and it doesn't look like it's going

to get better going forward given that last 12 months revenue growth is only 0.1% plus the firm had some

pretty bad guidance that we want to talk on just a minute here but we can see the stock's already

been punished a good bit for it does it deserve to more? Well, these were the results that cost to that brutal absolute punishment that it's taking here today. Delivered about $12.4 billion in revenue, so it did beat on the top and the bottom line, not by as much when he factor in severance costs after they fired 1,600 people last quarter. Now, the real worst part was this.

Here, Converse revenue was down 19%. That's extremely surprising down much more than anybody

would have anticipated, but it was kind of overshadowed by the increasing gross margins.

And really, like we said, the actual problem with the earnings report was guided. So they left it

unchanged from fiscal 2024, about 1%. And they added that they

expect low single digit revenue declines in the first half of fiscal 2025. That really was the

key line right here, low single digit revenue declines in the first half of 2025. Now,

that's going to be the big problem going forward, especially considering that revenue growth

has been pretty garbage since late 2021 when we finally started reopening and people could spend money once again.

So it's been trash since then and we can see that by this revenue graph right here.

This is plotting purely just the change in revenue.

We can see it used to sit somewhere in the like 6 to 12% range.

Now we're in like the 0.5 to 4% range. So ever since this huge jump, Nike really hasn't been able to get back on its feet, despite the fact that they are now focusing on shoe sales. So, you know, some of the analyst reactions were pretty bad too. Nike does tend, however, to give relatively conservative guidance. They rather under promise and over-deliver. And it seems like that's kind of the vibe that they're going for, but, you know, doesn't look like anybody's really buying it. RBC already downgraded the stock. Now, it wasn't a huge downgrade because this price target cut is only about 10%. But the real problem is in China. So that was the main concern going on here. If we go ahead and look at this geographic

breakdown of the company's report, we can see that over the past couple of years, everywhere besides the United States has actually seen growth slowing. And we can see that in all of these columns here. And then if you look at China, it's even worse because it's actually negative territory. Now it did get slightly less negative, which is obviously a positive sign. but that China market was a huge part of Nike's growth strategy, and it doesn't seem like it's going well anymore. Now, a big reason for that is because youth unemployment in China has absolutely skyrocketed in recent years. This is kind of the period that we want to be looking at. They didn't even publish the data all throughout 2023, so we don't know how bad it really got, but currently sitting at about this level once again. This is 22, but they just released January data, and it's about that 15%. We look more broadly, we can see that the United States and Canada are pretty much the only market for Nike's gear that actually has a solid youth unemployment rate. And we care about youth because that's who's Nike's selling to. Now, I don't know about you guys, but my dad doesn't know any shoes besides his boots and new balances. So no old people are going to be buying this stuff unless it's for their kids. Now we see China's youth unemployment much higher than elsewhere in the world. And then the European market is key for Nike too. We can see the youth unemployment has also spiked lately. So definitely not a good sign in a lot of our markets outside of North America. And it hasn't been good on the margins either. Now, what we can see here is a whole lot of volatility. But if we look at gross profits, we can see if we analyze it like we're technically analyzing a stock, we can see these declines. So it's lower peaks and lower troughs as well. Now, net profit margin is a little bit better of a story here. It was gradually climbing year over year, but we saw a staunch decline lately, especially in the past 12 months. So obviously, the margin story isn't really there. Now, at the same time, the stock's valuation hasn't really moved at all. It probably should be lower, but really hasn't moved whatsoever. We can see that in this EV to sales, this is

Nike in this dark blue line. You know, it's sitting much higher than that of Adidas in this

orange and allbirds in the blue. So we added Adidas and Albers. Adidas is really the only

like comparison, but Nike gets kind of a US premium over Adidas, but still, we see Alberds, which is based in the United States, absolutely limiting. And Alberts probably should be the highest because they're the new guy on the block. People think of them as tech oriented. So they're getting hammered. We can expect Nike to as well. Not in the way that, you know, Nike's former sponsor, Tiger Woods did when he was driving on a freeway. This is the bad way of being hammered. This is absolutely getting destroyed. And we can see that in this price to earnings metric as well. This is Nike in blue. They are well above that of Albert's. Adidas. Now, Albert doesn't actually have earnings, but still. So what's next? young consumers, Nike's primary demographic, do they care about Nike's brand? Probably not anymore. Gen Z consumers just want to buy something weird and kind of that other people don't really know about. That's Gen Z's favorite things, being unique. So they're not going to be going after these big brands like Nike. Youth in China, I mean, we know that the CCP, they really do not like anything American, so they're going to try to heavily dissuade their populace from buying American branded products, and Nike is one of the best American brands out there. How can Nike maintain its valuation going forward? I mean, these are just some of the biggest questions that we have right now, but let's go ahead and finish up with the WSO rating.

...