Going to keep it short and simple as I’m about to set off to bed. Nike has decided to exit Footlocker retailer with its products.
Since the news, the stock has fell approximately 30%. However, I have reasonings to believe it’s not priced in yet. This could be a great play with put leaps expiring anytime after earnings on May 19th. Why?
Nike is the top vendor that accounts for approximately 70% of its revenue. That’s it…that’s the play
However, they will try to draw in buying sentiment with their 33% dividend increase and $1.3B share repurchase plan.
Thanks to @drblitx for making me aware of this. Could be the most obvious bear case. I’m currently trapped with a pattern day trader lock on E*TRADE and possibly won’t be able to get in for a week or two, but I would go with ITM puts expiring after May.
It seems like Nike is slowly dropping retailers. Nike has already dropped
- Urban Outfitters
- Shoe Show
- Dunham Sports
- Olympia Sports
- Big 5 Sporting Goods
Nike dropping Foot locker was a bit of a surprise since earlier they stated that they have no plans to drop the retailer. Sources: Forbes Forbes2
This also opens up a potential puts play on other retailers which we anticipate Nike(and others) will be dropping in the future. In addition to Nike, Under armour and Adidas have also expressed interest in growing their direct to consumer channels with Adidas having an aggressive target of 50% (up from 41% currently during pandemic) of sales direct-to-consumer by 2025. The ones that come to mind are:
[DKS] Dick’s Sporting Goods - Nike accounted for 19% of their revenue Source
[TJX] - TJX Companies (Marshalls, TJMaxx etc)
[KSS] Kohl’s Corporation
Interesting play. You mentioned Nike accounts for 70%??? of FL’s revenue? That is actually nuts. Seems like a drop larger than 30% is warranted?
How will they do a 1.3B share buyback with 800M in cash and 3B+ in debt?
Although, their Q4 2021 ER seems to note different numbers:
The Company’s total cash position, net of debt, was $347 million, as compared with $1.6 billion last year
Flows for FL with 100K+ filter.
But also… why are whales turning around Feb 25 and especially Feb 28? Seems like more downside with this news on a 70% revenue cut?
Seems like someone knew the news coming, unless it was pure coincidence with the earnings bet but on February 23, all flows over 100K on February 23 were FDs, with most being slightly OTM.
Very interesting. Thanks for sharing!
So funny enough, and I never made the connection, but the mall next to us has a Footlocker and a House of Hoops by Footlocker right next to it. I was going through it and they had mentioned that they were closing down the House of Hoops which sold almost all Nike and Jordan shoes and gear. It was super weird and I asked why that was the case and they didn’t know they said upper management asked em to. I asked what they would be turning it into and they said it would be some sort of setup tailored to children. Could maybe be a positive catalyst once the price finds where it needs to be? Next time I go I’ll definitely ask more questions.
Good points but I’m worried that May ER will cover 1st quarter 2022 and Footlocker would still be selling their existing Nike inventory
Guidance should be shitty without Nike
I started some May puts today on this, prepared to add if it should go into the gap, I think your right about positive buying sentiment off dividend and repurchase plan, wonder if they end up cutting their repurchase program or altering it on may earnings
70% is quite a bit of revenue
I grabbed 1 4/14 25P for .50 depending how how things progress I will add on to it or buy down in the next couple weeks
Sold that one this morning for .60 - got to love small gains they add up
nice, im thinking of closing out of my puts too, they’re up some 20-30%, so most likely gonna exit
Edit: ya took the exits for 25-30% on them, I was holding them upside down with the Pete N. pump, decided ill take the profit here even though its probably spy related and look to scale back in for another trade later
If it were me, I would - I might get back in as the prices roll around - I am sure it is SPY related but profit is profit