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Well Nike shares are jumping after reporting third quarter earnings moments ago. For more reaction we're bringing in David Swartz, equity analyst at Morningstar. And David, it seems like people here are ready to just give, give them a little grace. Give them a little wiggle room when it comes to Elliot Hill and his turnaround efforts at the company. But what did you think of this quarter specifically?

Yeah expectations were definitely very low. I anticipated an 11% sales decline and it came in down about 9%. So it was a little bit better than expected, but of course that's still a very poor quarter by Nike standards with the sales and earnings down significantly. But as you said, people anticipated that and they're willing to give Nike a pass. Realistically we've been hearing bad news from Nike now for well over a year, really going back to probably December of 2023. And so it's been a string of difficult quarters and of course there was a CEO change. And if things were really great then there wouldn't have been a CEO change. So people know that there are problems at Nike. This has been certainly highly publicized, and so people know that there's not really going to be a turnaround that we're really going to see until probably at least fiscal year 2026.

Was there anything in this report that sort of showed any kind of green shoots in that regard, or do we have to kind of wait for the call? And if so, what do you want to know from them at this point?

Yeah we don't have a lot of information yet, but it looks like the North America sales were not too bad, just down about 4% or so. So you know, that's not too bad in comparison with some other athletic companies that have been reporting in North America. However, the sales in greater China were certainly very weak, um and Europe doesn't look very good either. So it's clear that Nike has significant problems in major geographic regions that are going to need to be addressed, and it's going to definitely take some time. We know that Nike has intentionally pulled back on a lot of its shoe franchises like Air Force and Dunk that had really become stale and oversaturated in the last few years. And there have been some new products including Pegasus premium, Vomero 18, that seem to be doing pretty well, but at this point we're really waiting for a lot of new products to come out, really starting probably in fall and winter of next year.

And what about the sort of inventory clean out that they had been undergoing, right? Where they had sort of the glut of inventory as sales slowed down a little bit, and they were trying to move that through the system.

Yeah I think Nike's inventory is in better shape than it was in the past. I don't think that it's it's perfect at this point. Nike's inventory got really out of control about two or three years ago, it was just way too much product and it wasn't entirely Nike's fault because there were Covid reasons and other problems that were going on at the time, shipping issues. Um and some of those problems, I think, have passed. Uh but you know Nike's inventory is not in, not in perfect shape because realistically its sales are declined. So it's hard to manage the inventory when you've got declining sales. It's much easier when your sales are increasing. So it's definitely going to take some time for Nike to get its inventory in better shape in every channel, and Nike sells into a lot of channels.

Well and Nike has its own specific problems and then there's the macro environment right now of course. So do you think that it is going to really be fighting even more of an uphill battle given what seems to be some really wavering consumer sentiment in the US right now?

I think Nike's really been fighting those issues for some time. We have seen, for example in China, youth unemployment has been high, and that's Nike's target demographic. We've seen similar problems in North America and Europe, where inflation has affected consumer spending, especially for younger adults, teenagers. And that's Nike's target market. So the economic environment has never been perfect, um and it will never be perfect. But I think it could be better than what it is now. Uh we don't know exactly when that will happen. So Nike needs to manage its business assuming that economic conditions will not be ideal. And Nike has been increasing its sales through the value channel to some degree, uh to the family channel as well as trying to increase sales of its higher performance and higher priced products too. So Nike really needs to address all parts of the market.

And then finally David I want to ask you about tariffs. We just heard from our Brooke DePalma that the company has reduced its reliance on manufacturing from China to some extent. How much exposure does it still have there that it is then exporting to the US? Um and how do you think it's managing the tariff risk?

Well the vast majority of Nike's products that are made in China are sold in China as well, so it wouldn't be affected by the tariffs directly. Nike actually imports a small percentage of its merchandise from China to the United States. Um however, the economic factors are still there. If the trade war causes recessions in the US and China then that's definitely very negative for for Nike. And there's also a risk that tariffs will be extended to other countries. If tariffs are extended to Vietnam, that would be very damaging to Nike because it is Nike's number one sourcing country, and it does a lot of importing from Vietnam. And so I don't think Nike can avoid those tariffs very easily. It would also affect Adidas which has a big manufacturing facility in Vietnam as well.

Interesting. So watch this space on that front. David, thank you so much for your time. Appreciate it.