June 26, 2020
There is a lot of weird financial data in/around Nike that is coming to a head. For those who track issues closely, Nike is using the COVID-19 issues to hide the Kaepernick effect.
Everyone remembers Nike went all-in on their social justice model and made a corporate decision to make Black Lives Matter activist Colin Kaepernick the image of their brand.
In their latest financial results Nike is reporting a net quarterly loss of $790 million…. That’s a big deal. However, given the defensive excuses over the COVID-19 shutdown, that loss alone isn’t the big story. Their year-over-year sales are down 38%, which tells us the downward spiral has been happening for a lot longer than a quarter.
How bad were their results? To give you some perspective most financial analysts in the industry were looking for a profit target around seven cents per share. The result Nike reported was a loss of 51 cents per share. That is a massive disparity.
In my opinion, having tracked MAGA and Anti-MAGA companies and effects, what Nike was doing in much of last year was hiding and deferring income losses due to sales declines. They did this because the larger goal was to hide the impact of their branding shift. Nike didn’t want people to know how much backlash they faced, so they used every mechanism possible including inventory manipulation to avoid showing losses.
However, as with all revenue and profit hiding schemes inside large corporations (and there are many that can be used) eventually you run out of ways to hide profit losses as a result of top-line collapses. Eventually inventories are trued up; eventually supplies need to be replenished; eventually extended -and or renegotiated- vendor payments need to be made; eventually it’s going to catch up to you. In my opinion, this is what’s happened.
Total revenue was down 38% to $6.31 billion from $10.18 billion a year ago. Sales in North America were down 46% (link)
Nike saw the COVID-19 economic contraction as a way to hide a top-line and bottom-line collapse that has very little to do with the coronavirus.
COVID-19 is their cover, not the principal cause.
Evidence to support my review found in the action that Nike takes after releasing their $790 million profit loss. Remember, this bottom line loss is the direct result of the top line collapse. The raw material doesn’t cost more (it’s actually less); inflation didn’t chew up their import pricing (it’s actually less); they are buying in dollars which are actually stronger; energy costs are not higher (they are actually less) and Nike has not been hurt by tariffs because Chinese devaluation of currency (beyond the tariff cost) has actually helped raise the profit equation for many importers. This loss is all about the top line.
Nike immediately responds by saying (emphasis mine):
Nike CEO John Donahoe announced in a company-wide email on Thursday that the brand will soon be “forced to make some difficult choices” that will “likely result in a net reduction of jobs.“
The email, viewed by Complex, comes after Nike posted a net loss of $790 million in its latest quarterly earnings report on the same day. The company attributed the loss in part to the strain COVID-19 placed on its business globally.
[…] Donahoe ensured that the reductions in staff would “not be done for cost reasons.” The CEO also said they were not a response to the coronavirus pandemic.
Instead, he wrote, the restructuring is a remedy to the “overburdened matrix” the company has become. He said the planned cuts are meant to simplify how Nike works and increase speed and responsiveness.
The email offers few details with respect to who among the brand’s thousands of employees will be affected.
It mentions that workers at Nike’s retail stores, distribution centers, and manufacturing facilities are not expected to be cut. But Donahoe also wrote in it that Nike does “not yet know how many jobs will be reduced, nor who will be specifically impacted.”
The layoffs are scheduled to happen in phases, the first one concluding in late July and the last one in the fall. (more)
Notice how everything in those statements seems to contradict itself and provides no clarity as to why such a stunning loss would be recorded? Again, my hunch is that Nike has been playing ‘hide the loss’ ever since their stupid business decision to rebrand as apparel only for social justice warriors.
Nike purposefully cut-out half the population of their largest market in order to virtue signal to their leftist peers and retain cocktail party invitations. Consequences from those painfully stupid -and brutally political- mistakes cannot be avoided forever. That’s the larger background.
Here’s an example of a company that will not put themselves in the same position of vulnerability; and it is not coincidental their announcement comes out immediately following the Nike report. Unilever is backing away from digital advertising:
UNILEVER – The complexities of the current cultural landscape have placed a renewed responsibility on brands to learn, respond and act to drive a trusted and safe digital ecosystem.
Given our Responsibility Framework and the polarized atmosphere in the U.S., we have decided that starting now through at least the end of the year, we will not run brand advertising in social media newsfeed platforms Facebook, Instagram and Twitter in the U.S. Continuing to advertise on these platforms at this time would not add value to people and society. We will be monitoring ongoing and will revisit our current position if necessary. (read more)
Centinel2012 