Nike shares slide on Q2 results despite beat on earnings and revenue

Jon Fortt (Host) 00:00.230

let's get back to nike those shares falling now more than four percent in overtime let's bring in oppenheimer senior analyst brian nagel for his reaction so the results got an outperform rating one hundred twenty dollars price target on the stock brian which is more important

Jon Fortt (Host) 00:15.110

here for investors in these results the china weakness or the wholesale strength

Brian Nagel (Senior Analyst) 00:20.710

well good afternoon john look i tend to think the wholesale strength and i the reason i say that i mean one it's a much bigger business but probably more importantly you know and nike once again mentioned this or at least alluded to this in their press release you know this is

Brian Nagel (Senior Analyst) 00:34.030

you know this is a turn around that's happening in a very large company and we're we're nike has focused they're seeing success you know and that's you know that's that re engaging with wholesale we've talked about the product innovation so you know i'm looking through these

Brian Nagel (Senior Analyst) 00:47.990

results of course we have nike conference call here in a little while they'll give more guidance there but if i'm looking what's in the press release and to me a real bright spot is that you know that north american sales growth which accelerated from the prior quarter easily

Brian Nagel (Senior Analyst) 01:02.550

topped expectations because again that's what nike 's been focused on so far so it shows where they're focused they're seeing signs of success so

Jon Fortt (Host) 01:10.390

why you think the stock action is so pessimistic i mean right here at these levels and overtime it's sitting right where it was before that tariff announcement tank i mean that doesn't seem like people are betting on a turn around

Brian Nagel (Senior Analyst) 01:25.390

now look i mean it's i talked to a lot of a lot of our clients at nike and there's a lot of skepticism out there OK and i would say that you know the reasons for that are many i mean you know one you know like i mentioned just a moment ago this turnaround is going to take time

Brian Nagel (Senior Analyst) 01:38.270

OK so there are investors that i talked to that say look i believe in nike i don't need to own it yet OK but i'm watching it and when i get that trigger point i'll buy it but then beyond that look we have a difficult macro backdrop you know i know there's a lot of discussion on

Brian Nagel (Senior Analyst) 01:52.910

this but you know from my vantage point you know here we are in the holiday season there are definitely bright spots in spending but overall i think the consumer is stretched and then with tariffs you know i think this feeds into the nike i mean look we are still dealing with a

Brian Nagel (Senior Analyst) 02:05.830

very dynamic tariff back from my perspective tariffs are making their way into retail prices we are as a result of that we're going to have reignition in in inflation and in the case of nike they've got to work through these tariffs you know they've said that's going to take at

Brian Nagel (Senior Analyst) 02:24.070

least a year so they're easy i guess the best way to answer your question is that the turn around i think is happening but before we get that full momentum it's going to take some time and i think you have a lot of investors basically waiting on the sidelines for that to happen

Brian Nagel (Senior Analyst) 02:34.310

well who's

Jon Fortt (Host) 02:34.750

going to eat nikes lunch if the turn around doesn't work that's i always like to ask that about turnaround situations it doesn't look like it's lululemon but there were concerns about woman's athleisure it doesn't look like it's under armour right there were concerns about that

Jon Fortt (Host) 02:49.270

a few years ago these smaller brands i don't know that they've made permanent inroads into the wholesalers based on the numbers we're getting what's the real who is the real danger for nike

Brian Nagel (Senior Analyst) 03:00.630

yeah so let me answer the question this way i mean again i very much believe in this turn around you know i think when we're sitting here a year from now we're going to be talking about a much stronger night david if the nike turn around does not happen if nike continues to

Brian Nagel (Senior Analyst) 03:12.830

languish i think we're going to see what we'll see is more the same and that really opens the lane opens an opportunity for these smaller grants you know these smaller brands that you know while nike had stopped innovating maybe it was too focused on digital backwick and

Brian Nagel (Senior Analyst) 03:26.910

wholesale you saw these smaller newer brands really emerge in footprint you know so if the if nike doesn't turn around it basically keeps that opportunity open i mean the bet i'm making is it goes the other way but i think you see nike strengthening it's going to be much more

Brian Nagel (Senior Analyst) 03:41.430

difficult for these smaller brands which have had some you know some time of successor