WHOA | *What* Nike JUST Said about Inflation & 2022

hey everyone we kevin here in this video

we're going to talk about some trends

that nike is telling us to look out for

in 2022 when it comes to investing we're

going to talk margins inflation

factories supply chain issues

advertising and much more including nfts

let's get right into it after of course

i mentioned that

i got a cold cup of coffee here

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before the end of the day on christmas

when the price goes up

not being the grinch that's the end of

the day of christmas so it's okay anyway

uh this is from the annual report from

nike three months ago we already know

that nike is adapting to a rapidly

changing media environment with an

increasing reliance on social media and

digital dissemination of advertising

campaigns folks when you hear digital

advertising what stocks are you thinking

i hope you're thinking what i'm thinking

snap facebook google trade desk adobe

roku pins twitter what about that reddit

spat coming up keep in mind this

advertising is going to be a big play in

2022 in my opinion financially it's not

guaranteed to perform well or perform at

all uh but those are some expectations

that i i do have it's that advertising's

gonna do great keep in mind also the

apple transparency upgrade

has created a lot of uh aggregation

loopholes for companies like snapchat

and facebook so the apple transparency

upgrade has kind of been scaled back a

little bit but going back this annual

piece here was from three months ago

going more importantly to what's going

on in the earnings call here take a look

at this folks

factories operational they're up to

about eighty percent of uh factory

volume again in vietnam and what's

really critical here is that nike talks

about supply chains normalizing heading

into their a fiscal

2023. now what's interesting about that

is technically their their third quarter

of 2021. so you've got to align this

this is such a mess okay so

q2 of 2020 in their world equals

q3

21.

that means q4 which is the quarter we're

in right now is actually their q3 2022

and there uh

q4 this is such a mess

it's better we do this together just so

you understand their q4 2022 is actually

q1 and then q1 2023 for their fiscal

year is actually the second quarter of

2022 for us so

why did i just waste time drawing that

out because it's important look at this

we are increasingly confident that

supply chains will normalize heading

into fiscal 23

heading into fiscal 23 means between

january

and june of this upcoming year over the

next six months they say they think that

supply chains will normalize

and this is despite the fact that

omicron is surging now keep in mind that

vietnam and a lot of southeast asian

countries have had massive backlash

because of supply chain disruptions and

factory shutdowns during the delta

variant now businesses and local

governments have decided they're willing

to stay open with substantially higher

caseloads because of the amount of

damage and job loss that shutdowns led

to in the delta surge this means that

even though we might see substantially

high cases in vietnam and southeast

asian countries and even in china where

we typically are used to seeing port

closures when cases go up anything

we might actually not see that happen

again because of the massive problems we

had with supply chains this means supply

chain issues according to nike could

abate starting within the next three to

six months here and that is good because

when supply chain issues abate prices

can go down

that is huge this is nike telling us

this keep in mind nike only has about

one third of their revenue that comes

from north america the rest comes from

across the world so if nike is excited

about supply chain issues getting better

that's huge

now i only highlighted some very

important things here not only though

are they talking about supply chain

issues getting better they reiterate how

important their digital advertising

strategy is they call this their

consumer direct acceleration strategy

they say digital is the engine driving

all of their ads basically so digital

huge huge huge huge and i thought this

was very interesting consumers to

consumers desire to wear athletic

footwear and apparel and moments of in

all moments of their lives is basically

expanding so it's kind of like

people are wearing gym clothing more

regularly in every part of their lives

now rather than just when they're going

to the gym i kind of agree with that i

like gym clothing too but anyway uh

they consider that their competitive

advantage is digital and the way they

advertise if they think their

competitive advantage is digital

advertising expect more digital

advertising and expect other companies

to follow they also think they're going

to be positive tailwinds for the health

and fitness movement around the world as

we get

you know into the summer and away from

covid once again uh okay so we talked

supply chains now this was also very

interesting not only did we talk

supply chains expect it to get better

within the next three to six months

which is great lots of emphasis on their

digital advertising but listen to this

one folks okay you know how we're so

worried about inflation potentially

continuing to get worse because of labor

shortages folks it's happening when

labor shortages get worse and it's

harder to hire people what do companies

do here you go on automation we've added

more than a thousand robots in our

distribution centers to handle the

digital growth in our digital

distribution center in memphis robots

handled more than 10 million units that

would have otherwise been required to

use manual labor and we continue to

scale blah blah blah blah anyway they're

going all-in on robotics they by the way

are using this company called geek plus

for their robots i don't believe geek

plus is public as at least as of

when i last checked on geek plus so i

don't believe geek plus is uh public but

abb is another company that is public

that's pretty big in robotics i don't

own any abb

and i've started going through the

earnings call a little bit for abb and

uh just sort of i know this feels like a

tangent but uh it's worth noting the

following here uh they they believe

they're not going to deliver as many

robots because of tight supply chains

that have impacted them much more than

they thought and they believe that that

challenge is not going to go away

quickly so you have a little bit of a

divergence here in which supply chains

might actually improve sooner

particularly the

semiconductor space and machinery area

was was

appears to be suffering more from supply

chain issues and that that they really

don't yet see those headwinds abating so

you've got some parts of the supply

chains

loosening up it sounds like consumer

goods a lot easier

especially over at nike but certain

parts like robotics and semis still

super tight tight tight part of this

could be and the st louis federal

reserve did a piece on this they said

that uh semiconductor prices actually

haven't really been going up even though

there's such a supply chain shortage for

semiconductor prices semiconductors or

for semiconductors semiconductor prices

haven't really been going up probably

because a lot of companies have 12 month

contracts with them which means once

those contracts expire and get

renegotiated then we can see prices go

up to finally help slow down the crazy

supply chain issues that we've had but

anyway abb definitely still seeing uh

issues here uh fun little fun fact here

they mentioned that they also released

what they believe is the world's fastest

electric vehicle charger charging

station i know that's that's totally a

tangent but it shows you that there's a

divergence in terms of which supply

chains are doing better and which are

doing worse and abb also talking about a

substantially tight labor market which

actually in my opinion benefits abb with

the exception of in their plants where

they need the labor because they create

autonomous style robots there are a lot

of companies that do robotics though

it's not just abb and i'm not trying to

just pitch them that's just a convenient

example i came across someone that was

reading the earnings report form but

anyway

uh nike uh obviously uh a larger digital

growth sales uh we know digital is

killing it for nike but this is very

this was a big one right here okay and i

wrote a note next to this one gross

margin increased

20 280 basis points versus the prior

year so 2.8 percent

driven primarily so their margins went

up 2.8 listen to this one here driven

primarily by nike direct margins due to

lower markdowns and higher full price

mix

okay that's critical

when a company does not have to do as

many markdowns and they're able to sell

more of their inventory at full price

you know what that means

that means folks it's not the company

that's experiencing or necessary cause

causing the inflation necessarily

causing the inflation folks it's us

we are causing the inflation because

we're willing to pay the merchandise

we're we're willing to pay full price

for that merchandise we're willing to

pay it's kind of like with chipotle

they're like hey you know our costs

haven't really gone up but we've been

able to raise prices yeah because

when you raise prices

and demand doesn't subside that means

that demand is elastic when demand is

elastic it means people are going to buy

even if prices are higher so we are to

blame in part for inflation we're

willing to pay

for stuff because we want it whether we

have more money because of the child tax

credit or stimulus or biden or or who

cares or or the stock market's wealth or

real estate's wealth or the perception

of wealth that it's giving off i don't

know

but nike here is saying hey we expect

this lower markdown higher pricing mix

to last for at least another six months

then

at some point in the future they do

expect

that they are going to lower uh their

margins that they are going to have to

go back to doing markdowns again

sometime by the second half of 2022.

now i thought this was interesting

because in my opinion if they're going

to lower their prices and go back to

markdowns in the second half of 2022 in

my opinion that again reiterates

advertising like hey let's make sure we

max our advertising before we start

lowering prices that's my expectation

they have a partnership with roblox

another digital style partnership

they do mention that here their fiscal

2022 outlook

reflects inventory supply

significantly lagging consumer demand

okay now remember

they are right now their q3 2022

or sorry their q2 2022 is q3 2021 this

is such a mess i understand but in other

words for the next six months so from

october

so october november december january

february march those six months they

think that inventory is still going to

lag consumer demand and that is going to

keep prices elevated for the next six

months or for the next three months from

now but the total of six months because

they're reporting from september 30th

right again a little confusing but for

that six month period

last three months first three months of

2022.

uh they are expecting still supply chain

issues and then we're gonna see the

u-turn and supply chain issues you know

in that april may june period and maybe

that's when we start seeing prices come

down which is hopefully also when the

federal reserve

slows down a little bit on their

interest rate push uh although we're

we're still 90 likely to get an interest

rate jack in uh

in march

uh then they do say that full price

realization will remain our long-term

target with lower channel markdowns

however we expect product costs to rise

in the second half due to higher macro

input costs so in other words uh they

they think that uh once their supply

chain catches up

their margins are going to compress a

little bit and then this is potentially

either because people will finally be

willing to pay less or their just their

input costs are going up that their

contracts potentially have expired fine

so margin gets beat up a little bit at

nike starting potentially in the middle

of 2022 uh but again overall supply

chain issues loosening up and that maybe

they're going to advertise more to uh to

avoid some of those markdowns but they

are expecting some markdowns

uh adidas mentioned and one of the

analysts reported that adidas mentioned

that maybe they had too much inventory

nike kind of punted on that question and

mentioned that hey you know they've

they've still got uh

they've still got more demand although

remember these earnings calls are like

sales pieces for the companies this was

interesting uh we started to re

big one here okay we restarted brand

activity folks what does that mean well

when you brand a company you advertise

they just restarted it

that's because why would you advertise a

ton in 2021 if you have supply chain

shortages like what's the point you're

gonna advertise and then people to go on

a six-month wait list for shoes that's

lame

but if your supply chains catch up now

you're prone to advertise more boom

advertising starts doing well again

right

big big big potential play there i know

i keep going back to that but it's a big

one i've been talking about it in the

course member live stream and buying the

dip quite a bit on on uh on this at

least i have been

but anyway uh they uh they think they're

a better position than they ever been

okay who cares today we've been so

they've still been delaying launches as

they've been waiting for supply of these

supply chains to catch up this was

interesting here on nfts they got asked

about their artifact acquisition that's

rtfkt

and the ceo literally punted on it he's

like yeah not a priority for us

so they're buying an

nft slash

footwear company where where you can buy

an nft of a shoe or whatever and and

then

get that shoe so you kind of have like a

bridge between uh the virtual and and

the real yet they punted on that saying

it's not a priority

kind of odd

interesting they buy a company and they

go yeah we just we just bought a company

but not a priority for us okay

uh we

and then in the near term

uh regarding uh advertising

they're asked again here about

advertising uh they mentioned that

their black friday was absolutely

massive that they sold more and more

products at full price than they had

ever expected before they were surprised

by this they're calling it the strength

of the brand and i'm like lol no people

just have more money and they're willing

to pay more but they do think that uh

they're going to see more markdowns in

the second half so coming up especially

as supply inventory normalizes

also a lot of talk about engagement

going direct to consumer and how

important their digital direct digital

uh penetration is so direct digital

penetration is basically rather than

selling their stuff through like target

selling it directly to the consumer by

getting people to go to nike.com whether

that's through their apps and their

partnerships or or just straight up ads

again ads restarting brand see the theme

here here we talk a little bit about

vietnam but we've already talked about

vietnam so i already covered that and

that's the end here so bottom line all

of this

what what what do we take away from this

well

some consumer product supply chains are

going to relax in the next six months

that means that we could start seeing

margins compress a little bit at

companies that sell consumer goods over

the next six months robotic supply

chains still a disaster semiconductors

hard materials so we would expect

continued potential pain for autos

continued potential pain for

uh

for for chip manufacturers

uh

for not being able to get out as much

inventory as they could otherwise right

because ultimately even a company like

nvidia even if you might have some

pricing power to raise prices you still

want to be able to manufacture more and

catch up right sell more chips to

bitcoin miners or whatever that that

ultimately helps revenue growth but uh

advertising

i think is is the critical moment uh and

the critical inflection point here when

you see nike going hey we've restarted

our advertising and we're ready to go

before we start cutting prices

that's a big one so personally not

invested in nike i think it's a great

company don't get me wrong but uh to me

this is uh much more of a tell

that uh as as um prices potentially

start compressing supply chains ease

ads ads ads ads ads

and robotics and robotics will help keep

inflation down as well over time that'll

take longer though we're still going to

see wage pressure for the time being

anyway those are some insights from nike

thank you so much for watching and we'll

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