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I think Nike has been a long-term pandemic winner: BMO Managing Director

Simeon Seigel, BMO Managing Director and Yahoo Finance’s Reggie Wade join the Yahoo Finance Live panel to discuss what to expect in Nike’s earnings report.

Video Transcript

- Let's turn our attention to one name we're watching closely. That is Nike. Those shares down now more than 2% right now after hitting a high in this session. The company out with its earnings today. The company reporting after the bell, and the timing of that raising some eyebrows here. Let's bring in Simeon Siegel. He's BMO managing director. We've also got Reggie Wade who covers the company for us.

Simeon, let's start with the timing. Are we making too much of this, the fact that it's a Friday afternoon after the bell, or is there potentially a big announcement coming?

SIMEON SIEGEL: Isn't it fun when we can talk about the timing rather than the numbers? I don't know. I mean, listen. I think-- who really wants to be sitting there listening to an earnings drop on a Friday afternoon in the middle of the holiday season? Honestly feels like something you'd want to hide rather than something you'd want to showcase if it was something really exciting.

The company is suggesting it's better now than next week and the holiday week, but at the end of the day, it's a fun thing to talk about, but it doesn't occupy very many of my conversations.

REGGIE WADE: Simeon, Reggie Wade here. One thing that a lot of people are following closely is how Nike is doing in China. We saw them last quarter return to growth after the stores opened, after China got through their pandemic. What are you expecting to see out of China?

SIMEON SIEGEL: Yeah, I think it's such a great point. And the reality is, the international focus for this company might help explain why even though, to us, it's Friday night at 5:00, there's a time zone, right now, no, I'm just kidding. I think that at the end of the day, this is going to be so critical, right? Because for many reasons, one, pre-pandemic, international was the entire story. There was this massive growth opportunity for Nike in general. But secondarily, if through the pandemic we are the lagging, right? The US was the later impact. We've been looking to this arc of recovery abroad to figure out how it plays over here.

So I think for many reasons, watching China's growth is going to be key to this story. I think the reality is it continues. So I think we'll have this blend of you continue to see China growing. You'll watch North America stabilize and potentially grow a little bit, which would be nice, but it's just being able to say, OK, if that's what happens there now, then that's what we can understand and we can extrapolate what happens here six months from now.

- And Simeon, we've also been seeing a theme play out of their investments in the e-commerce side, bringing a huge boost to the company there. That's probably one thing we can guarantee is going to be stressed when we get the update from Nike. But what are you expecting in-- on that side of the business, especially considering that we have also seen now kind of a return to foot traffic in some of their brick and mortar stores?

SIMEON SIEGEL: Yeah, I think we're going to keep seeing this tale of however many stories. We want to say it's going to be more than two, but you'll see strong revenue growth in areas that they are emphasizing, right? So to Reggie's point international, to your point we'll have e-commerce. But there's also going to be this conversation of shifting away from undifferentiated retail. So these moves that they've been making to regain control, to re-elevate their brand and own how Nike is represented to the consumer, that will continue to grow. And on the flip side, outlets, off-price, different wholesale that's undifferentiated, different stores that weren't open. We're going to see areas of the business that are weak, but the reality is, you can actually make the argument they want them to be. Weak.

So I think there's this period of transition that the pandemic is helping to play into. Does Nike do worse during the pandemic than they would have otherwise? Yes, I think they do. I don't think they were a pandemic winner during the pandemic, but I think what's going to be really interesting is on the other side, the discord and the chaos that the pandemic threw upon all their competition makes them a long-term pandemic winner, makes them-- ability to take more of that share.

- And Simeon, I want to pick up on that point you made about China, because I think it is interesting that a lot of companies have highlighted the bounceback they've seen in that market at a time when the US is really struggling to get the virus under control. You could also argue, in some way, the China risk, so to speak, has sort of receded to the back, the expectation being that under a Biden administration, those trade talks, the rhetoric, isn't going to be quite so volatile.

To what extent can the Chinese market pick up the slack for Nike at a time when we've seen a slowdown in some of the more Western markets? And does that ultimately shift up the strategy in a more significant way?

SIMEON SIEGEL: Yeah, it's a really good point on so many fronts, because obviously, Nike-- we have manufacturing done abroad. We have consumer spending done abroad, and we have brand perception done abroad. So all of these aspects, I think watching China, watching that arc, will be absolutely critical. And in this scenario where there's just less conflict across the globe, that, obviously, will help that as well.

Now I will say, I think that walking into a lot of the trade war conversations, we all assumed Nike would have been plagued in a way that they really were not. So I think that for various reasons, which we can go to or not, I think that they transcend some of the US element. I don't think Nike is viewed as a US company. I think they're viewed as a global athletic company, and I think-- we've spoken about this before-- I think that Nike, beyond simply being one of the best sellers of product in the history of time, are also one of the best marketing stories in the history of time.

So I think that there are certain brands that are, to their core, they're perceived as US-centric brands, and that comes with the good and the bad. I don't think Nike is that. So I think that as we watch China, as we watch this kind of the new approach towards trade wars or lack thereof, they should be a beneficiary. But I think it's also important to acknowledge they had some pretty good years in the past four.

REGGIE WADE: Simeon, what are you expecting to see out of Jordan brand? Many people call this the year of the Jordan due to the popularity of The Last Dance, that you have mainstream consumers flocking in, getting Jordan's, not just sneaker heads. So, what numbers do you think we'll see out of them?

SIMEON SIEGEL: Isn't it amazing that Jordan brand as a standalone brand, is one of the largest brands in the history of time. We think about it as a subset of Nike, but it's not. And what they've been able to do with Jordan brand has been the unparallelled, again. I mean, it is one of the largest brands. So, I think we continue to see that. I think, to your point, we had The Last Dance. We're seeing more endorsements. We recently saw colleges being picked up. I think that they are using this as an opportunity to drive a different angle.

And you have a company that does $40, $45 billion of revenues, being able to recreate a new brand that can get you there and do an add-on several billion is a very special thing that they've been able to do. We're obviously seeing it, in theory, being emulated by Under Armour, so I think that that's kind of essentially more validation. But I think we should continue to see really strong results. And I think it's a very exciting part of the story.

- And we'll see what happens after the market close there. Don't need to dig into the conspiracy theories anymore, but exciting times you get a Friday call. Simeon Siegel, VMO managing director alongside Yahoo Finance's Reggie Wade. Thanks to you both. Have a great weekend.