Is Nike a Value Stock?

I am not convinced Nike - NKE - $73 is an attractive value stock. The strategy of pushing for more DTC (direct to consumer) business at the expense of traditional retailers was a horrible mistake, that will take time to recover from. At a valuation still over 2x EV/sales, NKE is not cheap. Ask me again when the stock is $50, and I might have a different answer.

Phil Knight was never a patient man. Now at age 86, I doubt he is getting more patient. NKE has always had a culture of trying to grow too fast. They have a history of being channel stuffers, and being a bully toward their retailers. Many years ago, during my time at the institutional research business Behind the Numbers we wrote over 2000 sell recommendations. Only about 20 companies called to complain, but NKE was one of the crybabies. The NKE CFO got on the phone, and after 10 minutes it was clear we would not change our opinion. There was a crashing sound in the background. The CFO said, “what you just heard was Mr. Knight throwing a lamp across the room”. By the end of the call, everyone was calm, and we had convinced NKE management we were not part of an evil short-seller cabal.

Another strong reason not to own NKE is there are attractive alternatives. While the other shoe companies are doing well, some of the apparel companies have been battered. Let’s take a walk through the wreckage:

1. Columbia Sportswear - COLM - $78 - This is the stock I want to own at some point. Just two years ago, in 2022, COLM thought they could make $7.50 in 2024, but in fact they will be lucky to make $3.50 in 2024. They have had 40+ temporary stores open to sell excess inventory. COLM has great products in the outdoor market, but supply chain issues caused them to build too much inventory. COLM still has more cash than debt. The stock sells at 1.2 EV/sales, and being a greedy bastard I am still looking for 1.0x. Both the company and analysts are treating 2025 as Lord Voldemort. “the year that must not be discussed”. Let’s watch very carefully.

2. Oxford Industries - OXM - $96 - I am convinced that OXM has built an underappreciated franchise in Tommy Bahama. I remain worried the travel cycle could get worse, before it gets better. Again this is a stock I want to own somewhere under 1.0x sales.

3. VF Corp. - VFC - $13 - This is a puzzler. Bracken Darrell has been CEO for over a year, and the stocks is down over 30%. I admire what Mr. Darrell did at Logitech, but so far there has been little progress at VFC. The problem here is the debt load is an issue. There is new blood at Vans, but that might not be enough. I want to believe, but so far I am skeptical. They need to sell something, and the buyers are just waiting them out.

4. Carters - CRI - $61 - I am embarrassed to write about this stock. I must admit I know absolutely nothing. It does have a 5% yield, and many years ago the Oshkosh B’Gosh brand was worth something. Being a supplier to Wal-Mart is difficult, but not impossible. The company does a poor job communicating with investors, but that just makes it more intriguing. I need to go talk with some children under 6 years old.

5. Canada Goose Holding - GOOS - $13 - Still not cheap at 1.7x sales, but they were hurt by a mild winter last year. Great fashion in winter gear, worth watching.

6. Burberry Group - BURBY - Yikes the yield is 9%+, and the balance sheet is clean. What am I missing? I have little experience with troubled British companies and Euro fashion. Let’s watch.

7. FIGS - FIGS - $5 - I love how the stuff looks, but I try hard to stay out of hospitals. Who makes the purchase decision, nurses or management? Still 1.3x sales, with a CEO/founder that appears to under 30 years old. Crazy speculation, but sometimes crazy is ok. Ron Baron owns 10%.

8. Hanesbrands - HBI - $5 - The terms of the Champion sale were not that impressive. Debt still at least 4x EBITDA, or more. My new crush, Gate City Capital, is a big buyer. Watching with heavy lenses.

9. Capri Holding - CPRI - $34 - This used to be Michael Kors. My imaginary girlfriend, FTC Chairwoman Lina Khan, has blocked their deal with Tapestry (the old Coach). She is my girlfriend because of her hard fought efforts to break up the cheating bastards at Amazon, Google, and Apple. Here Ms. Kahn is all that stands between the world and an international women’s purse cartel. Anyone that has ever paid through the nose for a women’s purse, knows this cartel has already been operating for over 30 years. Ms. Kahn must prevent another dirty deal. If Trump wins, Ms Kahn will be unemployed, and the deal could still be done at $50+. Play merger arbitrage if you must.

10. Under Armour - UA - $7 - The founder is back, but I will continue to avoid. I wear their products almost every day, but they are a classic example of a company that tried to do too much. UA has told Wall Street the turnaround will take 18 months and nobody is too impressed.

There are 20+ more apparel companies that are doing well. The Ralph Lauren - RL - turnaround is worth reviewing. It can be done.