The only winner in the shoe war is the bears. In pursuit of sales, prices for sneakers and apparel are reaching points far too low to sustain past multiples on names like Nike (NKE) and Under Armour (UAA) .
The specialty retailers in the sporting goods space have fallen one-by-one over the past few years. Of course, we still have a few left where we can pick up shoes or clothes or equipment, but the choices have narrowed. But this quarter's earnings report from Nike isn't looking good for the short term picture. Cost cutting propelled EPS over Wall Street estimates, but revenue fell short and the company saw its weakest quarterly sales growth in seven years. Domestic margins are offsetting strong international results, although even those numbers waned a bit.
Now Nike is going to reinvent itself -- even if they phrase it differently. The company wants to recreate the scarcity in its Jordan brand, but this is going to create a huge risk. Create too much scarcity and the company may cut into its own sales. Don't create enough and you won't have any impact on price or demand.
The company also stated that it's trying to adapt to the lifestyle fashion trend in an authentic way. Isn't this just a fancy way of saying that you are going to try and spot the next popular trend early and try to be first to market with a product? In short, isn't that what most retailers, or businesses for that matter, try to do?
Retail has been challenging enough. Getting long Nike here feels like a faith buy in the near term. You buy if you have complete faith management can do exactly everything they laid out last night. When I look at the weekly chart, I see the low $40s if the $50 level fails. Fortunately, the stock is off the lows this morning -- and almost two bucks off the $50 level, but the only way I'd consider moving into Nike in the short term is by selling out-of-the-money puts and getting shares put to me at a lower level.
Implied volatility is down over 30% today post-earnings, so this really isn't the time to implement such a strategy, which puts me on the sidelines for now. At this stage, I only see Nike as a trading stock. I'll consider it for intraday or multi-day trades, but nothing more than a week.
Micron Technology (MU) did its part, delivering fantastic top-and-bottom-line numbers last night. The outlined areas mentioned yesterday continued to grow, and we've begun to see them boosting the bottom line.
Micron is definitely a player in AI and autonomous vehicles. If you were a seller of the October 20 $33.50 put yesterday in the $1.18 area, these can be repurchased around $0.27 or $0.28, capturing over 75% of the maximum profit potential overnight. My view is to close these down and capture the profit.
The trade:
--Buy to close October 20 $33.50 puts at $0.28;
--Net cost $28;
--Net profit $90;
--Original trade date: Sep. 26, 2017.
At the time of publication, Collins had no positions in the stocks mentioned.