# 659 – 📉 Nike just isn’t doing it – The Average Joe
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    # 659 – 📉 Nike just isn’t doing it

    victorlei

    March 25, 2024

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    Good morning. The AI discussion often centers around big players like the US and China — but don’t count out the small Caribbean island of Anguilla, which earns a fee every time someone registers a URL ending in .ai. Anguilla has now generated $32M — over 10% of its total GDP — all because “ai” happens to be the country’s assigned domain.

    Best of all, they’re using the lucky windfall to fund healthcare for residents over 70. So the next time you hear about AI doom, remember it’s not all bad — just ask Anguilla.


    CONSUMER

    Nike Just Can’t Do It Anymore: Why the Athletic Apparel Giant Is Struggling

    Nike ($NKE) has been urging the world to “just do it” for decades — but in recent years, it’s been struggling to “do it” in the way investors want. Instead, the athletic apparel and footwear giant has hit a rough patch, with its stock down ~50% from its 2021 peak.

    No running from this: Fluctuating overseas growth, new competition, and uncertainty about its brand direction have weighed on the company’s profit margins and revenue. Despite missing analysts’ expectations for two consecutive quarters, Nike finally managed to exceed holiday sales estimates, with North American sales climbing 3%.

    • However, there’s a significant caveat: Nike anticipates growth to slow to “low single digits” during its next fiscal year, which starts in June.

    • UBS analyst Jay Sole attributes Nike’s challenges to the company’s efforts to expand its own stores and digital network, which have “added complexity and inefficiencies.”

    Not just a Nike problem…

    Dwindling savings may finally be impacting the entire retail sector. Last week, the National Retail Federation said it expects retail sales to increase 2.5-3.5% in 2024, a drop from last year’s 3.6%. Nike’s struggle with product innovation exacerbates its problems as competitors roll out new styles and streetwear (rather than relying on refreshing old styles), capturing consumer attention with trendier and more affordable options.

    • Brands like On ($ONON) and Hoka-owned Deckers ($DECK), up nearly 30% and 40%, respectively, appeal to runners and athletes — convincing the world that ugly shoes are back in style.

    • Even athleisure giant Lululemon ($LULU) faces challenges from dupes and cheaper alternatives, with its stock falling 16% on Friday after reporting earnings.

    Nike needs a solution… fast: Nike says it will raise prices, cut back on inventory, and refocus on wholesale shoe retailers like Foot Locker ($FL), which helped them develop into a mainstay. It also aims to move its inventory away from its iconic Air Force Ones towards more colorful, relaxed styles to draw back the sneakerheads that helped it generate $48.7B in footwear revenue last fiscal year.


    PARTNERED WITH RYSE

    Chance to Invest Alongside Prominent Venture Capitalists

    VCs know how difficult it is to spot promising early investment opportunities. Even the all-knowing Sharks from Shark Tank declined the offer to buy 10% of Ring for $700K.

    It’s a decision they would regret when Amazon acquired Ring, turning the $700K into $10M. But what made Ring blow up and change doorbells forever? Retail distribution.

    RYSE has launched in +100 Best Buys, but did you know that they pitched on Canada’s Shark Tank, Dragons Den and received two offers?

    Exits in the smart home industry have yielded massive returns for early investors (look at Ring and Nest’s billion dollar acquisitions) and the Dragons think they’ve spotted the next success story in RYSE.

    Invest now and don’t make the same mistake the sharks did


    LARGECAP RECAP

    🇺🇸 Trump’s social media company barrels toward a financial disaster

    Reddit wasn’t the only social media company to hit the public markets last week. On Friday, Trump Media, the parent company behind Donald Trump’s Truth Social app, scored approval to merge with a SPAC, Digital World Acquisition Corp ($DWAC). At a $5.7B valuation, Trump’s 60% stake is valued at over $3B, pushing the stock up over 130% this year. But beware — it could soon face selling pressure.

    • Trump may be forced to sell part of his shares to foot his $454M bill as part of a civil fraud case settlement.

    • Although Trump can’t sell his shares for six months, there’s a possibility that family members and allies on the company’s board could waive this restriction.

    The math isn’t mathing: In the first nine months of 2023, the company made just $3.38M in revenue with a $49M loss. And regardless of what it made in the final quarter, a $5.7B valuation brings its price-to-revenue multiple well over 1000x. Last September, the company almost ran out of cash — at one point, it had just $1.8M in the bank. Nonetheless, the merger injects much-needed cash of $300M into Trump Media — even if it also provides its nearly 400K investors reasons to run.

    🗽 Immigration is the unsung hero of the post-pandemic economy

    JPMorgan’s ($JPM) head of research suggests that immigration is playing a crucial role in driving the US economy beyond post-pandemic expectations. A near-record 3.3M immigrants came to the US last year, and a similar number is expected this year. Goldman Sachs ($GS) projects that this above-average influx could boost GDP by 0.3% this year.

    • Immigration is compensating for declining birth rates, resulting in the largest single-year population increase in the US in 2023.

    • The expanding labor force is helping to moderate wage growth and keep inflation down, which could keep the economy humming through 2024 and lead to prolonged higher interest rates.

    What about illegal immigration? While undocumented crossings made up a portion of last year’s record immigration, Pew Research estimated in 2020 that only a quarter of immigrants were unauthorized. Despite the expectation of continued high immigration through 2026, a smaller proportion will originate from the US-Mexico border, as Congress recently passed the most aggressive immigration bill ever. However, in the first four months of 2024, the southwest land border apprehension rate surged to 92% — the highest in history.


    JOE’S MARKET PULSE

    🔗 Clear Secure / Dutch Bros

    3,000+ investors are in on this: Eli Electric Vehicles is rethinking city driving with an EV 70% smaller than a traditional sedan. They already have hundreds of sales across Europe. Next, they’re tackling the US market. Invest in Eli on their journey to dominate the $470B micro-EV industry →*

    Markets & Economy

    More hail leads to big insurance claims: Insurers reported $60B in losses due to severe thunderstorms involving hail. Weather data shows that reports of 1”+ hail are up 17% from 2021, including “gorilla hail,” which is baseball-sized — so stay safe out there. [Read]

    China pulls ahead of US in AI talent: While the US has more powerful AI models for now, China is producing almost half of the world’s top AI researchers (compared to ~18% from US colleges). Previously, leading Chinese researchers would migrate to the US, but now, they’re largely staying in China. [Read]

    Walmart-backed Ibotta files for IPO: The digital marketing software company has seen enough strong tech IPOs — and it’s hoping to join the party, filing for a debut that could value the company at over $2B. [Read]

    Business & Wealth

    United ($UAL) introduces shared frequent flyer miles: Jealous of your partner for racking up all those miles? Now, you can beg ask if they’re willing to create a joint account and spread the wealth — so you can all redeem them for cheaper flights and upgrades. [Read]

    Subway drops Coke ($KO) for Pepsi ($PEP): Subway has been Coke’s biggest client for a while now, but the sandwich chain announced a partnership with its top competitor starting in 2025. [Read]

    2024 Olympics opening ceremony to be screened in IMAX ($IMAX): Athletes will proceed down the River Seine on boats — the first opening ceremony not held in a stadium. And you’ll be able to watch it all in IMAX as the specialty theaters experiment with more live, limited-time programming. [Read]

    *Thanks to our sponsors for keeping the newsletter free.


    CHART


    DIGIT OF THE DAY

    New $4.25M Drug Hits the Market, Signaling Big Pharma Trends

    Living can be expensive… but you probably already know that from your grocery bills. For the rare few born with metachromatic leukodystrophy (MLD), surviving means shelling out a staggering $4.25M. Last week, the FDA gave the green light to LENMELDY, a groundbreaking gene therapy from Kyowa Kirin’s ($KYKOF) Orchard Therapeutics — making it the most expensive drug in the world.

    • MLD affects ~1 in every 100K live births, disrupts most functions, including speech and mobility, and is often fatal within five years.

    • Orchard justifies the eye-popping price tag by asserting it “reflects its clinical, economic and societal value” (BBG).

    Nature or nurture? The answer is both. Gene therapies, which modify the genome of specific cells, have made significant progress in recent years. Bloomberg predicts annual gene therapy spending could skyrocket from $5.15B in 2020 to $25.3B in 2026. The number of gene therapies in development surged from just under 200 in 2011 to a staggering 1,745 in 2021 — predominantly targeting rare diseases and commanding million-dollar price tags.

    Read: Vertex ($VRTX) made a fortune pushing a rare disease into extinction, but now it’s betting its future on gene therapies.


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