I'd be a buyer of Nike on a day like today, says Neuberger Berman's Kevin McCarthy

Andrew Ross Sorkin (Anchor) 00:00.190

we got some news on nike today nike shares down sharply really on china weakness also some soft kindness guidance joining us right now is kevin mccarthy his neuberger berman a senior research analyst the stock off about ten percent right now kevin you heard what we heard from

Andrew Ross Sorkin (Anchor) 00:15.310

nike about all this do you say to yourself this is a dip worth buying do you say that there there's more to go what what are your feelings here

Kevin McCarthy (Senior Research Analyst) 00:23.800

yeah good morning andrew you know i think clearly the market is going to be disappointed by these results today in particular the lack of financial progress and i think frankly that we need to take their word for it that this this will not be a linear progress that being said i

Kevin McCarthy (Senior Research Analyst) 00:43.400

i do think that there were some redeeming qualities in the quarter some encouraging data points particularly out of the US that in my view doesn't really change the the long term earnings power of this story so yes i'd i'd be a buyer on a day like today

Andrew Ross Sorkin (Anchor) 01:01.630

fifty nine oh nine this is the price tag right now what do you think the price should be twelve months out

Kevin McCarthy (Senior Research Analyst) 01:09.510

what i think is i think that you know this is a alpha generative investment higher over the next couple years you know without putting a precise number on it you know if you're looking at something in the mid fifty billions in revenue you know getting back to the double digit

Kevin McCarthy (Senior Research Analyst) 01:29.800

margins ten percent as you're starting point you know that that i think is kind of your financial recovery starting point and then you kind of start to think maybe what is potentially an option with margins going higher could it go twenty could it go thirty percent higher but

Kevin McCarthy (Senior Research Analyst) 01:50.190

you know i think and then you kind of pick your multiple on top of that for a growth business so

Andrew Ross Sorkin (Anchor) 01:55.310

how happy are you with this management team

Kevin McCarthy (Senior Research Analyst) 01:58.710

i think there are changes still elliott is still trying to find who he trusts who he relies on so there are some shifts being made but i think he does know you know i think he knows what he needs to be doing and again going back to some of the more kind of the encouraging data

Kevin McCarthy (Senior Research Analyst) 02:15.990

points on progress you know the US started first right so you know we've got now clean us inventories which has been a a slog to get through order books are improved gross margins ex tariffs they were actually up and and and you could argue that nikes actually doing okay where

Kevin McCarthy (Senior Research Analyst) 02:38.150

they can effectuate the most change which is in their direct stores so why is all of this important yes it's important because of you know full price selling and better margins but at the end of the day this is a turf war being done sport by sport region by region channel by

Kevin McCarthy (Senior Research Analyst) 02:59.150

channel they started in the US we're seeing the progress points in the US and you know over a couple year period i i think that like i said before this will be an alpha generative opportunity

Andrew Ross Sorkin (Anchor) 03:13.230

how much of this though just has to become has to be about the nike brand re emerging as hot again i think one of the big questions is just from a zeitgeist perspective you know where nike lies in all of this

Kevin McCarthy (Senior Research Analyst) 03:28.860

i i think nike in in when you look at teen surveys is actually still faring pretty well they've got a lot of blocking and tackling to do i think the you know re entering the zeitgeist is going to take time and so when we think about kind of the cadence of how innovation is going

Kevin McCarthy (Senior Research Analyst) 03:47.140

to flow through it's going to start with performance the performance is what inspires the lifestyle the lifestyle is what kind of gets you into the zeitgeist that's going to take time they don't need all of that to get into their double digit margins but i i i i i take your

Kevin McCarthy (Senior Research Analyst) 04:03.870

point and i think it is a it is a is a battle and they got to put some wins on the board on the performance side before it kind of matriculates into the the lifestyle side of the business

Andrew Ross Sorkin (Anchor) 04:15.470

question for you kevin you know i think a lot of folks are watching what's gonna happen with tariffs whether it's the supreme court and what comes out there and how things move do you think that we scrambles the story

Kevin McCarthy (Senior Research Analyst) 04:26.910

oh for sure i mean if if it depends on the magnitude but but but i think that could that could quickly change i mean we're talking about three hundred basis points there's over three hundred basis points of impact so yeah that that that would be a a game changing situation but

Kevin McCarthy (Senior Research Analyst) 04:47.960

there there is still a lot of blocking and tackling that they can do to to bring to elevate the brand to where they want it to be