North America was really good for Nike despite weak China sales, says Guggenheim's Simeon Siegel

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joining us now is simeon siegel consumer equity research analyst at guggenheim security simeon great to see you

Simeon Siegel (Consumer Equity Research Analyst) 00:05.590

it's see you guys good to be back the

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market is not really trusting the the turnaround story here what is the the market reacting to in in the moment and i guess in your mind what is it missing yeah so listen

Simeon Siegel (Consumer Equity Research Analyst) 00:17.750

it's interesting opportunity to come back and take a fresh look and see where stocks are and we know i'm a glutton for punishment so here we go no but i i think that there were two things at play here there's north america and there's china and so you spoke about china which is

Simeon Siegel (Consumer Equity Research Analyst) 00:32.350

not good no one 's gonna think that's good and china 's very important to nike north america was really good

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with it so

Simeon Siegel (Consumer Equity Research Analyst) 00:38.350

north america you saw a nine percent revenue growth remember this is the whole nike has flooded the market with classics with jordans air force ones dunks and they're never gonna be able to grow again because that hole is gonna be so big and they grew and they grew for the

Simeon Siegel (Consumer Equity Research Analyst) 00:49.310

second quarter in a row why

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what's going on there is it running business is it so it's

Simeon Siegel (Consumer Equity Research Analyst) 00:53.190

funny i think a while ago so last in my last lifetime you and i spoke about how i think nike right now is facing very similar issues to what they faced against adidas ten years ago and when nike faces competition they first flood the market with their classics that hits a wall

Simeon Siegel (Consumer Equity Research Analyst) 01:11.950

because it becomes over distributed and diluted they then create a competitor rhyming type of a product nike 's new vomeros big

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foam soul you

Simeon Siegel (Consumer Equity Research Analyst) 01:22.480

said it i didn't but they're they feel comfortable right big foam sole and then they hate nike is an incredible marketing budget when nike actually has product to deploy and a story to tell they're very hard to all right so you

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know what this makes me think they got to get rid of the china business why not i'm the market is telling you the market is telling you the shares are down ten percent today they are down fifty five percent starbucks is doing seriously why not just be like what it's clearly a

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millstone around this company 's neck so

Simeon Siegel (Consumer Equity Research Analyst) 01:51.710

now you'll get elliot hill on the show and you can pitch that as your banker there you go you just heat it up i think that china has been a very important part to any global brand whether it's luxury whether it's nike there's a lot of people that are willing to spend a lot of

Simeon Siegel (Consumer Equity Research Analyst) 02:06.190

money and the problem was china was always not just the fastest growing it was the most profitable i don't know that you walk away from that i think you need to figure out similarly by the way the US north america was down last year too and so what you need to figure out is how

Simeon Siegel (Consumer Equity Research Analyst) 02:18.470

do you reset this base how do you do it fast enough and then how do you build back up in a healthy way your ways really creative it's probably right from my perspective i think of all of a sudden we lost china i think that would be another story but i think that what they need

Simeon Siegel (Consumer Equity Research Analyst) 02:29.870

to do is they need to figure out where what's nike 's greatest benefit it's their budget it's their size it's their history and so their ability to outspend the competition makes it very difficult for anyone to win on a recurring basis it's easy to win every now and then you

Simeon Siegel (Consumer Equity Research Analyst) 02:43.790

come out with the hoka product cloud from on right you get a bondi from like this it's hard to find and to always put out the number one product it's not hard then compete when you know what product you're supposed to be playing against

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how should an investor set his or her expectations though about where this stock can go at this valuation you know they rebased their earnings so we're talking about you know on a forward basis whatever it is two thirty two forty that was earnings in fiscal two thousand

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seventeen for the stock yeah

Simeon Siegel (Consumer Equity Research Analyst) 03:12.390

i i think we've spoken about companies like TJX which i'm never going to be able to give you material earnings upside and i'm never going to be able to give you material multiple upside and yet the stock keeps going higher it's great business you sleep easy at night and you keep

Simeon Siegel (Consumer Equity Research Analyst) 03:24.190

pushing out your numbers this one you keep pulling your numbers forward and so i think there's if you said to me confidence that this is the end confidence that we are not lowering our numbers again i can't give you that confidence sure i think that's what this is now if this

Simeon Siegel (Consumer Equity Research Analyst) 03:34.790

was a lesser quality business that would be a huge problem and by the way the stock has been stagnant to down yeah and so i think it has been a problem but i think the idea here is if we can see if we believe because we had the same conversation a decade ago right people thought

Simeon Siegel (Consumer Equity Research Analyst) 03:46.230

nike was over when adi had the ultra boost if you believe that this is that history is going to rhyme won't repeat but if you believe it will rhyme then it's a question of when not a question of if if it's a question of when and not of if people will come back to this