Weekly Roundup 2022-07-01

Lunar Capital Weekly Roundup

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 723 66 349 65 662 -10.92%
NASDAQ Composite 15 833 11 608 11 128 -28.87%
S&P 500 4 797 3 912 3 825 -19.74%
Prime Lending Rate 7.25% 8.25% 8.25% 13.79%
Lunar BCI WW Flexible Fund 165.68 136.20 137.95 -16.74%
USD/ZAR 15.96 15.81 16.34 2.45%
EUR/ZAR 17.95 16.69 17.00 -6.23%

Source: iress

Company and Market News

Nike, one of the world’s leading designers, marketers and distributors of athletics wear, released their 2022 Q4 and full year results on the 27th June. The company’s share price closed at $101.18 on Friday last week. The stock is down 38.6% since the beginning of the year, compared to the S&P 500 which is down 20.26%.

For the year, Nike’s revenue grew by 5% to $46.7 billion, and had a net earnings of $6 billion (grew by 6%). The company did, however, return approximately $5.8 billion to shareholders through dividends and share buybacks. One of the struggles the company has been facing is the global supply-chain issues. Inventories for Nike increased 23% to $8.4 billion, mainly as a result of Nike having more unfinished products that they currently aren’t able to sell.

Generally, the more high-end a clothing company, the greater their gross margin. This means that companies with lower gross margins are more susceptible to inflationary price pressure as they could be forced to increase the price of their products if their costs increase dramatically. And that would lead to fewer people buying their products. The large decrease in the share price is likely due to the high levels of inflation in the US and Europe; the possibility of the US going into a recession; global supply chain issues; and Nike exiting operations in Russia. These factors are all likely affecting the near-term earning potential for the company. It is worth noting that one of the huge upsides for Nike, is that they have a really strong global brand with a large base of loyal customers that will only buy from them.

Nike’s competitors such as Adidas and Lululemon have also suffered similar fates to their share prices this year.  Below is a table comparing certain metrics for these companies as recorded on the 1st of July 2022.

Company Market Cap ($’bn) PE Ratio Rolling 12 months Gross Margin % Change in Price YTD
Nike 159.20 26.98 46.00% -39.59%
Adidas 33.75 25.91 50.23% -33.79%
Lululemon 33.62 35.98 57.68% -33.94%

Source: Iress; Nike, Adidas and Lululemon financial statements

 

Disclosure: Lululemon is held in the Lunar BCI Worldwide Flexible Fund.

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