BofA's Lorraine Hutchinson on Nike: This was a much 'bigger reset' than we had expected

Bank of America, you came out with that big bullish call, Lorraine, and, and it appears that it was either wrong or too early. What do you make of the of the quarter? Yeah, look, I mean, I, I, we expected a bit of a reset out of Nike. We had previewed the quarter expecting them to temper their revenue expectations. This was a much bigger reset than we had expected. And what's going on is Nike is taking some very aggressive actions to remove inventory from its digital channel that's slower moving. They had a choice. They could, you know, let it out slowly at a discount, or they could just rip the Band-Aid off. And they did the latter. So they're pulling a lot of the lifestyle product off of the website as it's slower moving. And the problem now is there's a timing shift. They have a huge wave of innovation coming in the back half. And in the meantime, we'll see some declines in revenue until some of the newness that's beginning to test really well in certain geographies and categories starts hitting in the back half. I mean, there, there is increasing chatter with a 1/4 and an outlook like this. Lorraine, as you can imagine from other analysts and investors around the leadership team, are they the right ones in place to engineer a turn around and bring back the innovation? Is the culture in the right place where it's been where Nike has been on top and a winner? What do you say to those concerns? Yeah, we're we're in the middle of a big shake up. You know, they've cut costs by $2 billion. They said last night they'll be investing a billion dollars back in customer facing activities. It's it's hard to go against a brand with a billion dollars coming at you. So what does that mean? That means marketing, that means demand creation, that means Olympic spending and it means investing in some new people. So one of the key problems has been a lack of really great innovation. And so I think they need to address that quickly. They're talking about it, they're testing it, but we need to see results soon. You know, there's a lot of efforts right now this week to string together themes between Nike, Levi, General Mills, Walgreen, I know some names that are not in your universe. But are you a fan of those efforts to to make some broad comment about the consumer? The consumer? You know, the consumer has been OK for a while. If if you look at my sector specifically, it's the product you spend on when you spend on everything else. So it's very discretionary and it's been choppy for three years. Apparel and footwear has been simply a market share grab in a slightly declining business. I don't think that's changed. And I wouldn't attribute Nike's problems really specifically to macro. You know, while they have struggled recently in China and Europe, the US business is fine if you have the right product. Nike is just losing share and they are currently taking some really big steps to try to change that trajectory. They say that they have confidence in the order books from wholesalers and that gives them optimism that what they're doing is working particularly on the performance business where they have seen double digit growth. Do you, do you buy that or does it worry you because the wholesale business is what they had been deemphasizing up until recently because it's not as profitable and it wasn't part of the long term plan. Look, it's been a really long time since we've heard positive signs out of the specialty run business. That's a performance business and we've generally seen performance lead lifestyle, right? If you have great brand heat with the top athletes, everybody else will typically follow and want to buy the shoes. So I'm encouraged by the double digit increase in performance in the fourth quarter. I think the order book reflects some real innovation that they're putting out there and running in basketball and I think that's a good sign. What they need is some new lifestyle products to combat some of the, you know, the newer entrants that are gaining a lot of heat. So how do you value a stock right now? It is down now 19.4%, which makes it the worst day for Nike since 1987. The stock went public in 198087 was of course, the crash. There's clearly a reset going on here and some confidence issues. How do you value it? Sure, I mean, so, so right now the stock is trading around 23 times this year's estimate. We think that as there's confidence building and as we start to see that -10 improved through the year, you will start to see investors give it a better multiple. I I think that, you know, what people are looking at when they value it today is they're looking at through earnings. I think $3 to 320 where the street shook out will be through. And I think you do need to put a higher multiple on that through. You want to buy great brands on a reset, and we think this is the time to do it. Yeah. I mean, it's easy to also to create a list of names that have just crushed it this year, whether that's Crocs or on or Gap or Abercrombie, some of those you do cover. Is it fair to say that the best performers year to date are your favorites? The you know, the, the, the best performers here to date have been real share gainers, right? They have product that's innovative and interesting and is really gaining the customer's attention. I think if you look at say the off price retailers, they're coming out with value that's second to none. And I think those are the exciting places to be because the customer is they have a little less money and they're very interested. So I, I think, you know, it tells you that the consumer, while just OK, can be great when you have the right assortment.