Nike has to 'reset the playbook' on products, says Jefferies' Randy Konik

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syria post nine today is jeffrey 's equity analyst randy connick randy welcome back good to see you how

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are you before before we get to the just buy it part what do you do about china if you're nike right now

Randy Konik (Equity Analyst) 00:09.990

look i i think what the markets missing about nike is the company is making progress where it is distorting resources and time and effort and that's in north america first and running the company talked about china on their call last night to say look we're going to focus on

Randy Konik (Equity Analyst) 00:24.390

china next they have a pilot program going on right now with a store and a couple stores where they're resorting and resetting the assortment and that's starting to work but china is going to take time i actually think china will start the bottom in the next few quarters and

Randy Konik (Equity Analyst) 00:39.470

we'll go on from there but you know the focus on the market today should be about the progress in north america which is a very good positive green sheet for

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the right we'll get to it but what what is the problem in china right now is it about merchandising is it about order books something else i think

Randy Konik (Equity Analyst) 00:54.030

it's about the the economy over there generally speaking we're seeing most companies that produce or selling to china or having difficulty so it's not nikes fault you know the the consumer in china is more price sensitive and nike is having to deal with that in addition nike has

Randy Konik (Equity Analyst) 01:10.230

to kind of reset the playbook in terms of product and they're gonna do that and it's gonna take time look we think it takes another three to four quarters in china to fix but you know what in the near term north america is really getting better that's that should be the focus

Randy Konik (Equity Analyst) 01:22.510

right now investors should buy the stock today looking at for two years from now which we think will we'll see earnings per share start to rally back from where they are today some

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of your competitors concerned at least in a note about their strategy of putting product in front of the consumer now in terms of the widening gap between direct to consumer yeah and the wholesale channel and maybe they're flooding that channel and it's gonna mean a tough twenty

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six how do you see it

Randy Konik (Equity Analyst) 01:47.910

yeah look i think what what's encouraging is that the the sell through rate in the new products in running are working well and if you look at the direct channel distribution the reason why it's lagging the wholesale channel distribution is they change the pricing architecture

Randy Konik (Equity Analyst) 02:01.430

and the the promotional architecture in that channel of distribution meaning they're being less promotional and being less promotional is creating a lower sales growth rate for that channel of distribution so i actually think it's becoming a healthier channel for the company you

Randy Konik (Equity Analyst) 02:15.710

combine that with a more balanced distribution wholesale coming back i think it's it actually says this company is doing the right things as we look over the next twelve to twenty four months

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what do you how do you assess the competitive posture at this point in time one of the reports i was reading with regard to china said that the consumers their favor some kind of niche brands that plan to specific attributes of the shoes and of the the other products is nike

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really leaning in and and in a good position to gain back some share

Randy Konik (Equity Analyst) 02:44.910

look china is a big market it's a big it's a great long-term market and sports going to become even more important in that market nike is doing a good job of look revenue trends aren't a disaster they're down sixteen percent they did slow sequentially from the last reported

Randy Konik (Equity Analyst) 02:59.470

quarter but they're not truly terrible i think what we're going to see going forward is the company just reset the marketplace it takes time and with that you know fruits of that labor will come through we've already seen it in north america we're seeing it in EMEA we will soon

Randy Konik (Equity Analyst) 03:15.710

see it in china so obviously i see why the stock is down today because of china but if people really think about the forest from the trees they see china will bottom out in about three to four quarters while the north american business and the EMEA business start to you know

Randy Konik (Equity Analyst) 03:30.630

accelerate from

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here tariffs taking as much or more than five percent out of gross margin when does that start to abate

Randy Konik (Equity Analyst) 03:37.190

well look i think another good aspect of the quarter is when they talked about north america gross margins they were down three hundred basis points but tariffs were you know impacting them by five hundred basis points so what does that tell you it tells you that the gross

Randy Konik (Equity Analyst) 03:49.630

margins in north america have inflected that's a big deal no it is so but when are they gonna even benefit more i mean at some point i would assume you lapped these tariffs i don't know well you know it's really good for nike and the rest of companies in twenty twenty six they

Randy Konik (Equity Analyst) 04:02.390

start to lap these incremental cost pressures starting in the second mostly in the third and fourth quarter that's a big deal so if you kind of add all that up together you have nike having the easiest comparisons in consumer discretionary we're going to see these china terrible

Randy Konik (Equity Analyst) 04:16.270

numbers get better and bottom and we're going to see these tariff pressures abate as they lap comparisons in the second quarter next year that's why you want to buy it today and actually if you look at the valuation the market cap of nike this is the most ubiquitous brand in the

Randy Konik (Equity Analyst) 04:29.310

entire world trading at a market cap of less than eighty seven in less than ninety billion dollars for a business that does about revenues at retail about seventy five billion dollars that's really low you got to buy this market cap at these levels today