Motley Fool Hidden Gems Investing - Nike’s Long Walk

Episode Date: October 2, 2024

A new CEO is hoping to turn the iconic brand around, but he’s not there yet. (00:21) Jason Moser and Ricky Mulvey discuss: - Earnings from Nike. - Tesla’s delivery numbers. - Adam Neumann returning to the office leasing business. Then, (16:06) Robert Brokamp and Dan Caplinger continue their conversation about estate planning, and how to give your loved ones a less complicated financial future. Visit our sponsor at www.landroverusa.com Companies discussed: NKE, TSLA, PYPL Host: Ricky Mulvey Guests: Jason Moser, Robert Brokamp, Dan Caplinger Producer: Mary Long Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

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I'm Ricky Mulvey. Joined today, fresh from his side hustle, is a longshoreman. It's Jason Moser. Jason, thanks for being here. Ricky, you're supposed to keep that on the down low, man. uh i don't even have a story about the port strike today i just uh let's go to nike i don't have a better intro for you with nike but the uh the embattled retailer reported yesterday after the bell i'll tell you i felt a little bad uh reading through the earnings transcript it's just the cfo on the call ceo john donahoe is out elliot hill still on his way in man this might have been a big bath because nike withdrew its guidance for fiscal 2025 postponed its investor

day is this is this a clean slate or is this a mess for the new ceo elliot hill coming into nike so is it fair for me to answer both i mean it it feels like a politics season go for it yeah i mean it it definitely feels a little bit a little bit of of both i mean it's very understandable look i mean they've got a brand new ceo coming in right elliot hill who hasn't taken the reins yet and so i mean this is a company that is i mean in big transition Right. So I think it's the right move for them to just try to throw it all out there. Right. The proverbial kitchen sink quarter. I don't know that that necessarily is a kitchen sink quarter that we saw here. But I do like at least that they're getting it out there saying, look, we're kind of hitting the reset button.

We have new leadership coming in, get some strategy changes in play here. And this is going to take a little while. I mean, this isn't a new business. And I've always said it's very difficult to look at Nike as a turnaround, given the size and given the brand equity. But, I mean, it really is. It's kind of a business and turnaround right now. And we're going to need to get some insight into what Elliott Hill's plan looks like. And so it makes a lot of sense for them to go ahead and get out in front of this. And we will we will see in time what the strategy is. But but I think for investors, it's reasonable to assume this is going to take a little while.

CFO Matthew Friend out there all by his lonesome. Matthew Friend without a friend. I see Mary in the background shaking her head. Anyway, the actual call, the actual call. Earnings beat expectations, revenue didn't. This is a company where they've got new shoes gaining ground in performance footwear. Their Sabrina line grew five times.

Kobe nearly quadrupled. AlphaFly, its running shoe, almost tripled. But that turnaround story, it made a big play on direct and digital sales. Both of those are down by more than 10% from the year prior. We've talked about maybe the corporate drama, but anything in the business performance here really standing out to you? Nothing terribly surprising. I mean, I think it's noteworthy North America was down 11%. And that's a big deal for a business like this. So it's something to at least keep in mind. Unit sales were lower. That was relatively expected.

They did witness higher average selling prices, which I think is a good thing to see. But, you know, you mentioned it, the direct, the digital sales. I mean, that really was something that stood out. I mean, there were traffic declines across Nike Direct. And I mean, you look at a week back to school session. And then also, you know, some of these core franchises, The company has really pegged so much of its past success on in Air Force One, Air Jordan One, dumps, these all underperformed. And when you consider footwear, it's like 70% of Nike's business. That's material. That matters a lot. You have to wonder, is that a blip or is that a sign of more trouble to come? But when you look at the overall results, I mean, revenue was down 9%.

percent. You saw Nike Direct down 12 percent. Nike Digital down 20 percent. And then on top of that, wholesale down 7 percent as well. Now, you got to at least, let's offer investors something to look forward to. Some good news, I mean, gross margin expanded 120 basis points, and that generally was associated to lower Nike brand product costs, but clearly a very challenging stretch for this business. I mean, they have products people love. I love my Air Force Ones. I think they're a great sneaker under $150. But this is a company that's definitely in a more mature phase, Jason. Brad Freeman, stock market nerd, pointed out on X that Nike's basically pushing year five, year five now, of no material revenue or earnings growth. Now,

one of the things we look for at The Fool is dark clouds that long-term investors can see through, You're not getting trapped up in these quarterly earnings, but man, that's not just adversity. That's a long, bad run. Are these dark clouds that long-term investors can see through? I mean, retail is really difficult and they got a lot of competitors. It is very difficult. I think this is a great reminder that even for the state-established brands like Nike, I mean, they go through these difficult stretches.

And I think it's core to understand with a business like this, is this a product problem or is this a strategy problem? And I mean, we could argue maybe there is a little bit of a product problem in that they've not really innovated. They haven't really invested in innovation recently. They've even called that out themselves. I think more so than anything, it was a strategy problem. And so I think when you look at a business like this, that's a little bit more encouraging because it hopefully can allow investors to potentially see through those dark clouds

and maybe look for a light at the end of the tunnel. Because if it's a strategy, but we already know Nike makes a lot of great stuff. You said you love your Nike stuff. I think a lot of people really do. And I don't think the Nike brand has really lost any cachet with the consumer. But I think it's going through a stretch right now where they failed to really innovate. There are a lot of small and nimble competitors entering the space, particularly in running. They're offering new alternatives and options for consumers that consumers are at least willing to try.

But again, I think it's something where we're going to have to see the strategy turn around, focus a little bit less on the direct, focus more on really what butters their bread, that distribution, those wholesale relationships. I think the Nike brand itself is still very strong. And given the company's scale, given its history, given its track record of innovation, I would not bet against them recovering from this and bringing new things to market that get consumers excited. Let's move on to the most valuable car maker. Is it a car maker? Tesla reported its delivery numbers, and while Wall Street wasn't satisfied,

the tech company, car company, AI company, robotics company, hey, it delivered more cars than it did a year ago. That's been a problem. 463,000 versus 435,000. Those doing the math at home, that's about a 30,000-unit increase. J-Mo, what's happening? Is the Cybertruck catching on? well ricky is someone who has actually had the opportunity to ride in a cyber truck and

witness it firsthand um i will say it was an experience i mean i i i it's it's interesting i guess it's not a car for me i don't think it's probably a car for the masses i don't think most people are looking for a car like that um it's interesting innovation it's neat i think must likes to get out there and really push the envelope and do different things. And certainly the Cybertruck is one of those. But, I mean, to your point on the deliveries, I mean, quarter in and quarter out, you know, you look at a company like this and you think about the deliveries they make versus the expectations. I mean, expectations of deliveries here were 463,310. And that compares to deliveries of 462,890. So kind of a rounding error, right? Not that big of a deal when you

consider the actuals versus what the expectations were. But I think longer term, you look at the market that Tesla participates in, right? It is becoming far more competitive now than ever before. Tesla is not the only company out there presenting compelling EVs. And I think that that is that's poised to continue that that's poised to continue and then i think the other question really is in regard to like early adopters and and how much our infrastructure can support evs today along with really just consumers buying into the concept right i think that's going to take a little bit more time clearly we don't have the infrastructure in place to really deal with uh everybody driving an ev i i suspect that'll change in time it'll

take a while though and i think that's what we've always said about tesla is regardless whether you view this as a car company or it's really a car company, but it's more, you know, an energy company and a battery storage company and a robotics and an AI company. I mean, they do have all of that working for them as well. But for now, I mean, much like Apple, I mean, Apple is an iPhone company and Tesla is still a car company. And so I think for that, you know, we're going to have to continue pay attention to these quarterly delivery and production numbers. In this quarter, they just didn't quite meet the mark. I think the most compelling case for EVs is for two-car households. You get a gas car and you get an electric car.

Wall Street Journal also pointing out two things lifting the total auto sales, strong performance in China, and also Tesla offering some compelling financing deals during this time of higher rates. As we look larger though, we don't want to just focus on the quarterly number. I thought it would be apropos to take a time machine. Back to October of 2022, two years ago, Musk has just taken over X. And we're here to tell you, we have 2024 versions of us telling you, 2022 Jason, that we're coming from the future. And we're here to tell you, Tesla stock hasn't cratered. In fact, it's up a little bit two years later. What's your reaction? well i mean tesla is a it's a very polarizing investment idea right i mean there are there

are a lot of people that are just all in and there are a lot of people that just don't believe in it and i think honestly looking at it today given what we know now after musk took over x and i mean clearly he's ruffled a few feathers along the way there as he becomes a little bit more political in his sort of, you know, participation on X and elsewhere. Listen, I think Tesla's probably done a little bit better than maybe some would have expected, given what we know now. But I mean, there is absolutely a risk involved with Musk having so many different pokers in the fire, right? I mean, he's not just running Tesla anymore. I mean, he's got SpaceX, he's got Tesla, He's got XAI. He's got X. He's got all of these different things. Now, he's really entering the political fray as well. And it, of course, it seems to rub some people the wrong way. Understandable. I mean, and that's something you have to keep in mind. And I think that's one of those dangers with CEOs getting out there and becoming political, espousing their political views and taking such firm stances.

You know, whether you agree with it or not, that's not the point. But oftentimes when you do that, essentially you're eliminating kind of half your customer base. There are a lot of people today that would never consider buying a Tesla anymore. Whereas a few years ago, that was probably at the top of their list. And the reason is because of, you know, kind of Musk's behavior and what he's done since that X purchase. So it's definitely up the risk profile, I think, for a business like this. But kind of like Nike, I mean, you've got to go back to really the products that they're delivering. And I think, I mean, Graham, it may take a little while to get there. It's hard to argue the fact that Tesla is producing some pretty phenomenal technology beyond just automobiles. And I think that's one of the really exciting parts about this business. I mean, it doesn't come without its risks, but this will be a fun story to follow for many years to come, I'm sure. I mean, we've talked about this with other companies. It's a wild mind leading the way.

You know how you can tell if someone drives a Tesla, Jason? How? It's like running a marathon. They'll tell you. That wasn't that good. Sorry. All right, WeWork. I want to do this WeWork story real quick

because Adam Neumann, he is all the way back. He has introduced a competitor to WeWork apparently called Workflow. This is according to a Bloomberg story. It's like a grown-up version of WeWork with nicer artwork and furniture. this is a part of its play to build these like residential buildings. These are the offices that are going in the residential buildings that it already owns or is partnering with landlords to

manage these spaces. When you look at this story, Jason, you think is the second time the charm here for Mr. Adam Newman? Well, is it really the second time? I feel like this is more like his third or fourth time, right? I mean, we had WeWork and then I guess he tried to redo the WeWork thing with a SPAC. And now he's got flow. And there are a couple of other things he did along the way. And I mean, in the immortal words of Jesse Pinkman on Breaking Bad, he can't keep getting away with this. I mean, I just it doesn't seem to be working out. I mean, this guy is a class A marketer. He can create some buzz. Right. But it doesn't really seem like investors are winning by hitching up to his wagon.

So yeah, I mean, listen, I give the guy a lot of credit for keeping on keeping on and trying new things. But I think I've seen enough. I think I've seen enough. All right, I'm gonna try to tie these three stories together. All of these are about companies

that are trying to be so much more than they are. Nike was trying to be a tech company. That's why it went so hard into the app, into the direct sales space. Tesla is a tech company. It's valued like one, not a car company. And WeWork was valued like a tech company, not a real estate company. And this gets to something that I want investors to look for, especially when they see companies

that are trying to pivot. Sometimes that can be successful like Tesla has, where it's very much a tech company. But what should investors look for when they're trying to see companies sell themselves is something more than they currently are? Well, I certainly never hold it against companies for trying to do that, right? I mean, things change, right? Markets evolve. And so pivoting is a good thing. You want to be able to do that. But I think questions to ask yourself, does leadership in the business, the current leadership, do they have experience related to that pivot? Are they uniquely visionary or are they just kind of regurgitating what investors want to hear? And so I think of

words like super app, right? When you look at something like PayPal, they talk about that super at. Or you hear every company under the sun today mentioning AI, even though it's not entirely clear how AI might really pertain to their business model. Metaverse, that's another one that comes up. I think just you want to try to pay attention to leadership, understand if they have any experience in relation to that pivotal direction, and then try to ascertain whether they're really just telling us what we want to hear or if there's really substance behind the vision. Jason Moser, thanks for being here. Appreciate your time and your insight.

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our new double espresso with ginseng extract. Whatever lies ahead, don't change your morning. Let your morning change you. Discover Coffee Plus on Nespresso.com. All right, up next, Motley Fool contributor Dan Kaplinger and Robert Brokamp continue their conversation about estate planning and how you can set your loved ones up for a less complicated financial future. You talked a little bit about how complicated it is to, when you have a will, to go through

the probate. And the person who's going to be in charge of that is the executor. In some places, they call it the administrator. So what does it take to be an executor, thinking in terms of who you're going to name to be the executor, or if you named one yourself for someone else's estate? I think if you're doing estate planning and you are thinking about who's going to be the executor of your estate, you just need to understand it's a tough job. The person who is the executor has to be impartial. They have to act in the best interests of all of the heirs that you name in the will, even if you have personal feelings about them. One story that I read about recently involves O.J. Simpson, who recently passed away. O.J. Simpson's lawyer was

named as the executor of his estate. He had initially said publicly that he hoped that the family of Ron Goldman, who you might know, had claims against the O.J. Simpson estate earlier on. That attorney said he hoped the Goldman family wouldn't receive anything from the estate. But later on, he had to kind of backtrack from that and say, look, I'm the executor. I am going to allow any claimant who has a valid claim to present those in court. And then I will, as executor handle them according to what state law does, whatever advisors that that executor had as well. And so you kind of have to put personal feelings aside and just do what you're supposed to do in order to get the job done. You had mentioned in your will that you dictate who

will be guardians of your children. But many people have other types of children. And we're talking, of course, about pets. Tell us a little bit about why it's important to consider your pets in your estate plan. So if you like your pets, then you need to understand that it can be, it takes very specific instruction in order to provide for them. Fortunately, all 50 states now have laws that allow people to set up what are called pet trusts. They allow you to put money aside for the care and upkeep of your pet. They generally only cover animals that are living at the time of your death. And so if you have plans, wider spread plans to help animals longer term, that's something that you're going to want to talk to a pet-based charity about. But as far

as taking care of your pets, you can name somebody who will, a human who will be able to take that money and spend it on behalf of your pet. Make sure that your pet gets the food, the care, the medical care, the attention that they need to live a long and prosperous life after you pass away. Something that is a part of estate planning nowadays that probably wasn't 20, 30 years ago were things like digital assets and social media accounts. If you pass away, do you want your Facebook page to be going on forever? What's the thinking nowadays about how you handle these types of things. It's funny. There are now specialists in what they call digital estate planning. They're talking about these digital assets like social media accounts. Basically, you have to know what

the rules are. Each social media platform has different rules to follow about what happens to your social media account after you pass away. The platform is often called this memorializing the account, making sure that it can continue after you're gone. Well, who has the rights to do that? And so these professionals, these specialists will advise you to name somebody they call a digital executor. Now, you have to be careful with this because states are slow to make new laws to keep up with the pace of technological advances. And so you really have to know what the rules are, what the laws are in your state to make sure that these specialists are actually doing the right thing for you and handling your, if you're the person that you're

worried about, your social media accounts after you pass away or another loved one, just making sure that access goes to the people that you want the access to go to and that nothing ill-founded happens to those accounts after you're gone. As you think about your estate planning, you, of course, think of who you want to receive your stuff. But you can actually put some requirements on it, I think. But I'd love to get your opinion on this. An example from a recent celebrity, that was Aretha Franklin. She passed away. She actually had two wills. One was in a drawer. One was found in her couch, I think. But one of the issues that her relatives thought about was that one of the wills would require two of her sons to go to business school before

they got their money. Ben Franklin did something like this in his will as well. By the way, I don't think there's a relationship between Ben Franklin and Aretha Franklin, but maybe no, maybe they're just some cousins. Anyway, so what's your take on requiring people to do things before they get their inheritance? So what I learned in law school, you can get in trouble putting conditions on your heirs getting money if you're not careful. Courts have often found that certain overly controlling conditions are unenforceable. You can't, for instance, say, I'm only giving you your money if you divorce your spouse. That's considered to be against public policy. Same thing for things like, I'm only going to give you money if you convert to a different religion.

There's one story I heard recently, though. There was a lawyer in Toronto who apparently had some extra money around, decided to leave a six-figure sum to whoever bore the most children over the 10 year period following his death 10 years later four toronto area women came forward they split this six-figure bequest they had had nine children each holy cow in that decade uh so you can think also in terms of you mentioned like pet pet charities you can think of ways to not just outright give stuff, but ways to really spread your bequest out over a longer time period. I've mentioned Ben Franklin. He famously left money to both Boston and Philadelphia to lend out to tradespeople for 100 years. Then the cities would get part of that money, but part of it would

continue to be used for tradespeople for another 100 years, and then the cities would get their money. That money, well over 200 years later now, is still benefiting those cities. What's your take on thinking like really long term with your estate planning? Yeah, it used to be there were laws that kind of prevented you from having much reach beyond like a great grandchild situation. It's called the rule against perpetuities. And basically it let you have two or three generations, but that was about it. Those days are gone. There are now dynasty trust rules in some states that allow trust to last for a thousand years or more. And that can be good or it can be bad. If you go back about 100 years, there was one millionaire. He directed that his assets be held in a low interest account and specifically made sure that none of his then living children, grandchildren or other family members would get one cent of that money.

Instead, what the trust said was it would be held until all living descendants when he passed away had died. And so fast forward 100 years later, in 2011, 12 remote descendants ended up splitting $110 million. Wow, amazing. Last couple of points to bring up here, we've talked about some legal documents that everyone should have or at least consider. But something we've talked about on the show before is that you should also include in inventory everything you own. You can call it your personal inventory. On the show, we've called it your letter from your dead husband in honor of longtime Fool member, Bob Hassmiller, who would create this document every year because he was in charge of the finances. It would be for his wife if he passed away. Sadly, Bob did pass away

in 2016 and his wife found it very helpful. And it's basically, if something were to happen to you, it's the document someone would look at and they'd know exactly which accounts you have. Where is your IRA? Where is your 401k? Where is your safe deposit box? What is the combination to the safe? Do you hide cash in your bookshelf somewhere? Where's your life insurance policy? All the important things, someone we need to know, because we all these days have multiple assets, multiple accounts, multiple things, and we just want to make sure people can find that. Okay. So you create that document. You've got your will. You got maybe a trust. You have all this stuff. You want to put it somewhere where people can find it if they need it, but you don't

want it just lying around on the coffee table either. So these days, Dan, what do people generally do with these important documents? There's all kinds of things that you can do. You can use technology and put them on your computer, but then you have to make sure somebody's got that backup password once your eyes or your fingerprints aren't available to open your computer anymore. Some people still go the old-fashioned route, put them in a safe deposit box, but then you got to make sure somebody knows where that key is. I haven't found a foolproof answer. Fortunately, I've got a relatively small family. My wife has a copy and my only daughter, she doesn't have a copy yet, but she knows where to find it. And that has worked

okay for me so far. Yeah. And that's sort of what I've done as well. I mean, my wife, of course, is my primary executor, but the backup executors know where we have hidden everything. And now that our kids or adults know where that stuff is too. Used to be, you would leave this with your lawyer, but it seems to be fewer firms are allowing that nowadays. Is that generally true? There's some liability concerns that if you entrust that stuff to your lawyer, and then if your family members go to your lawyer, your lawyer can't find it, then the family members could have a cause of action. And then you end up with a malpractice lawsuit on top of the complication of not being able to find all that stuff. And so some law firms have said, no,

we're not getting paid extra for that. We're not going to do it anymore. And so that leaves you as the family members trying to figure out how to handle it on your own. So the bottom line, again, is to put it somewhere where the important people know where to find it, but not necessarily everyone can find it. Thank you, Dan, for joining us. Glad to be here. Thanks, bro. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.