Nike Inc - Class B

We initiated a partial position in Nike, a premier athletic shoe and sports apparel company. The company's share price has fallen sharply due to weak sales in China, a strategic misstep toward direct-to-consumer sales that has hurt long-standing relationships with wholesale partners, and competition from newer brands. After several years of poor results, the company brought in a new CEO in 2024 to repair its relationships with global retailers and restore its image as a sports-focused company. Our interest was piqued when we saw significant insider buying of stock at prices below $60. We believe the turnaround at Nike will take time, but the risk/reward at the current price is very attractive.

Nike exemplifies a business model that is adaptable and relevant in tomorrow’s economy. The company has demonstrated durable pricing power, supported by a growing competitive advantage. Historically, Nike has been willing to invest aggressively in growth, which has allowed it to maintain a strong position even when market conditions are challenging. This approach has often resulted in the company being undervalued based on traditional financial metrics, while its true earnings power remains strong. As the economy slows, Nike's insulated growth runway positions it well for a strong recovery.

Nike is an iconic sportswear brand that has built its business around promoting a healthier lifestyle, offering products that combine performance, utility, and durability, all driven by technology and innovation. The company’s pricing power is anchored in its brand strength and technology, supported by a robust supply chain and distribution network. Repeatable revenues are driven by the nature of sportswear, which wears out over time and leads to repeat purchases, with 65% of sales coming from shoes, a category known for customer loyalty and stickiness. We believe the business has bottomed out, with improvements expected each quarter going forward.

Nike exceeded analysts' expectations with its latest quarterly figures, indicating strong performance despite a decline from the previous year. The company anticipates that the decline in sales and margins will be less pronounced in the current quarter, suggesting a potential recovery. This positive outlook has led several analysts to raise their price targets, reflecting confidence in Nike's ability to navigate current market challenges and capitalize on future growth opportunities.

Nike [NKE] is something we’re actively looking at right now, a good example of the type of 'resilient incumbent'... In this case Nike clearly made some missteps by alienating channel partners and dropping the ball with respect to the product innovation it was known for. We generally think those issues can be fixed and the fact that the company can spend $4 billion per year on demand creation – their term for advertising and promotional spending – is a significant competitive advantage. We’re seeing early signs that the business can inflect and get back on the track it was on.

Nike is still struggling as it attempts to clean up its over-inventoried position and revive new product launches. Given that its shoes are predominantly manufactured overseas, the recent round of tariffs will increase costs as well. These challenges indicate a difficult path ahead for the company, impacting its performance and valuation.

Nike is still struggling as it attempts to clean up its over-inventoried position and revive new product launches. Given that its shoes are predominantly manufactured overseas, the recent round of tariffs will increase costs as well. These challenges indicate a difficult path ahead for the company, impacting its performance and outlook.

Nike is still struggling as it attempts to clean up its over-inventoried position and revive new product launches. Given that its shoes are predominantly manufactured overseas, the recent round of tariffs will increase costs as well. These challenges indicate a difficult path ahead for the company, impacting its performance and outlook.