Sam Dickie: Fisher Funds expert on Nike's share price dropping

New reports show Nike's stock has plummeted 68 percent from its November 2021 peak.

Experts say it's a textbook 'fallen angel' - a former market darling now trading at beaten-down prices.

Sam Dickie from Fisher Funds explains further.

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Episode Transcript

Speaker 1 (00:00):
Sam Dickey is with us from Fisher Fans. Hello Sam,
good eating here right, let's talk about Nike, because, as
he points out, Nike has has had its stock plum
at sixty eight percent from its peak, which about November
twenty twenty one is a textbook fallen angel. What's gone
wrong here?

Speaker 2 (00:14):
Well, John Donaho, he was the CEO that came in
about five years ago in twenty twenty, and he pretty
quickly shifted Nike's focus. So, as you probably know, it
used to be all about having sported its course, so
organizing itself around megasports like basketball, running football, plus being
very very visible in retail stores and using its power

(00:35):
its might to elbow out all the wannabe brands off
the best shelves. So he did a few things. He
wanted to make the company more profitable. So he simplified
the company's divisions by men, woman and kids rather than
by sport, and he turned his back on the shoe
shops and sports retailers to try and sell more products online,
which on the face of it makes sense because you

(00:56):
have a simpler divisional structure, you reduced a number of
expensive sports specific designers, and instead of paying away profit
to a retailer to sell your product. You keep that
extra profit for yourself and sell directly off your website.
But it backfired and Nike he lost its sports specific
product innovation advantage. And what's worse, that shelf space that

(01:18):
had freed up by turning its back on retailers was
greedily gobbled up by smaller innovative brands like Hoker and
On Running. Ah.

Speaker 1 (01:25):
And that's quite key, isn't it, Because because Hoker look
at what's happened to Hoker lately, right, And you've got
all of these because I mean, part of the story,
as you say, is what's going on within the business,
but part of it is also the pressure from the
competitors like Hoker, like Lulu Lemon as well, isn't it.

Speaker 2 (01:40):
That's right? And they were able to use their mic
previously to ensure they get all the best shelf space
in it in a shoe shop for example, and when
they turn their back on those retailers, that space was
it greedily gobbled up. And ironically here that Hoker and
On Running used the same strategy that Nike did back
in the day to take on you know, the big

(02:01):
players back then probably Eddie, ass Converse, Puma, and use
that really kind of sports specific product innovation. So really
focusing on running shoes, really focusing on basketball shoes to
beat at its own game.

Speaker 1 (02:18):
Now, look, I know retro is back, Sam, but do
you think that maybe overly reliant on their retro styles.

Speaker 2 (02:25):
Yeah, well, they have been super reliant on those mega brands,
and look that that's part of that. So that the
changing strategy and that reliance on those mega brands like you, Jordan's,
et cetera, which I guess sort of retro has punished
the stock. So you know, inventory is every consumer product

(02:45):
company's worst nightmare. And Nike's inventory shot up from five
billion dollars to eight billion dollars because it couldn't sell
enough product vi it's new online strategy. Profit fell, cash
flow almost halved. So it not die straits, but the
company got itself into a materially worse position than it
was and hence, as you say, it fell sort of
seventy percent in terms of stock price.

Speaker 1 (03:06):
Yeah. Now, the thing that you would refer to as
Nike's competitive moat is that still intact or is that
gone forever?

Speaker 2 (03:12):
Well, that is the number one question. And remember mote
is a sustainable competitive advantage, like a motor around your
business to ward off the ravages of competition. In Nike's
moat is of course it's incredibly powerful brand, but that
brand is supported by its scale. So it used to
support that brand with its scale by elbowing you know,

(03:32):
the wannabe Hokers and on runnings off the shelves. But
it also spends almost five billion a year on marketing
and sponsoring the best athletes in the world and that
hasn't changed. So they recently wrapped up Caitlan Clark the
WNBA Sensation for about twenty eight million bucks, despite Puma
adi das underarma or clamoring for attention. And I think
it was Lebron James that describes it best. He could

(03:55):
have gone with Rebok for one hundred and fifteen million dollars,
but we were Nike for ninety million dollars because he
went and saw them and was walking the hallways and
saw life sized cutouts of Michael Jordan and Tiger Woods
and realized he had to side with Nike. And the
other thing is that the CEO, John Donna, who's now
gone as well, so he's been replaced by Elliot Hill,
who started at Nike in nineteen ninety eight, is an

(04:17):
intern and he's changed course. He's steered the company back
towards its course. So I think the moat is still there,
it just needs to be fixed up a.

Speaker 1 (04:25):
Bit interesting, Okay, So what does this mean for investors?
What do they need to consider?

Speaker 2 (04:31):
It's a reminder of a few things. So of all
the types of moats, so I think about cost advantages,
customer switching costs, or even patents, brand can be the
most fickle one. So a brand note mote needs to
be well looked after, which it wasn't under John Donahoe.
And it's also a reminder I think for companies that
hiring from the outside can be a risk. So John

(04:52):
had been on the board of Nike, but he'd never
kind of worked for Nike as an employee, had never
lived and breathed on a daily basis what makes the
place tech? And the new CEO was hired as an intern.
That's almost thirty years ago. So what is interesting, Heather,
is the proof is going to be in the pudding
because the company's reporting it's fully a result tomorrow. And

(05:13):
one thing for sure is for sure sentiment is very bearish, which,
on the one hand, is very helpful because even a
halfway decent result should see the stock price move higher.
But if Nike misses earning the expectations significantly tomorrow and
can't even get over the very low bar set by
a seventy percent full in the stock price, perhaps that
amazing brand mode is even more damage than the market thinks.

Speaker 1 (05:36):
Interesting. Okay, Hey, thank you very much. I really appreciated it.
As per usual, Sam that Sam Dickey Official funds.

Speaker 2 (05:43):
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