TIVP015: Nike (NKE): Just Buy It? w/ Daniel Mahncke and Shawn O'Malley

28:26Actually, I thought it might be my German buyers working here, but the numbers back my feeling that for the longest time the shoe market was dominated by just Nike and Adidas. Globally they too control 25 % of the athletic footwear and apparel market with a 60-40 split in favor of Nike. Historically the US has been a stronger market for Nike and more challenging for Adidas but in the last 10 years Adidas almost doubled its market share to about 11 % now while Nike struggled to grow further. I mean, it still has double the share of Adidas and multiples of any other brand. Speaking of other brands, two companies that have been discussed a lot recently are the French brand Hoka and the Swiss brand On.

29:14Both of them exploded in the pandemic era. Many people started running as a new hobby. And as you well know, of course, you need new and the best running shoes to do that. Some years ago, Nike probably would have been the first company that comes to your mind then. But Nike hasn't been known for innovative running shoes for quite a while now. And their focus on fashion has left a vacuum in that space. And both On and Hoka are founded by athletes who design shoes with new exciting technology from their own experience as an athlete. what would you say makes Hoka and On so special? I see them both at the gym all the time but I'm also not confident that this isn't just some passing trend in footwear popularity either and I'm sure that when shelf space is free wholesalers probably want to fill spots with new brands if they can but why rely on newer and smaller brands instead of say Adidas, Puma or Reebok?

30:20Well, On and Hoka have used the same playbook that we have discussed once again in our Montclair episode. They went from niche to mainstream. And pretty much every successful brand used that playbook when they had to compete with much larger and more dominant competitors. Ludo Lemon, for example, started in yoga and then expanded into the mainstream by doubling down and also creating themselves the athleisure trend. On and Hoka both did it with a strong focus on running, a market that, like I said, Nike has neglected for quite some time now. And each of them address a different customer. On shoes are very minimalistic and aimed at the premium customer.

31:04That's why they have high margins and half of their sales go through their DTC channels. Hoka took the exact opposite approach with its very colorful look and they kept the focus more to the functional side. And I agree, this might be a fate. But it's not only those two brands that pressure Nike. Even Skechers had double-digit growth last year. So Nike is losing market share across the board. Premium customers go to ON, running enthusiasts go to Hoka, and more price-sensitive customers go to Skechers. And this is just a small part and only the competition in the Western world. China has brought up its own competitors, most notably Anta and Li Ning.

31:49Perhaps you know Anta since you're an NBA fan. I must admit, I didn't know them before, but Anta has overtaken Nike's China division in sales back in 2022. And it's also tapping into the US market. A collaboration with Dallas Mavericks point guard Kyrie Irving has seen demand for Anta shoes in the US skyrocket. and golden state guard Clay Thompson already left Nike to sign with Enter back in 2017. And I know all of this sounds a bit drastic and I'm basically emphasizing on this, but it still makes sense to take one step back and then remind ourselves that all this competition and all these strategic mistakes over the last couple of years has quote-unquote only resulted in the loss of 1 % of global market share for Nike.

32:40For perspective, Apple has a comparatively large share in the smartphone market and just like Nike, Apple has lost 1 % of that market share in the last couple of years. Nike's shares have since fallen 60 % from its all-time highs. Apple shares still trade only 13 % under its all-time high. And I know, this comparison lags in many, many ways. Apple's financials do not even remotely show the same downward trend, but there are some similarities. Both companies experience market share declines, both face tougher competition globally, especially overseas in China, and both trade at the same PE, which just shows you how much investors are willing to pay for$1 of earnings.

33:26So, for example, if Nike earns$1 per share at a PE of 35, investors are willing to pay$35 for a Nike share. That's pretty high. And that only means they give Nike the benefit of the doubt because it's a strong brand with a lot of history. If I would have to summarize the competitive dynamic, I would say that barriers to entry came down significantly through e-commerce and also social media marketing. I mentioned how Nike turned athletes into individual brands, but social media has turned pretty much everyone into an individual brand if they use it the right way. 10 or 15 years back, the companies that were able to sign the big athletes were pretty much untouchable.

34:11And Nike had a head start after signing Michael Jordan and initiating this trend. Today, social media has created millions of those new personal brands and Nike and Adidas just do not have the same control over celebrity endorsements anymore and also over what brands could come up. Despite that strong growth from Hoka and on, we shouldn't forget that Nike still has a pretty dominant position, as you've said. From the numbers I've seen, Hoka's revenues are like$1.8 billion and On's are a little short of$3 billion. Yeah, when you look at Nike, its annual sales are gigantic at I think north of$50 billion, maybe$51 billion.

34:56And for the record, I rounded down there by a little bit, probably by a couple hundred million dollars, which for Nike is a rounding error, whereas for Hoka and On, that's like 5, 10, 20 % of their entire business. And so that alone sort of makes the point. And maybe it's too easy to dismiss things to call Hoka and On rounding errors, but in a way they are, at least in the big picture here. Based on the lower barriers to entry in this industry that we've seen as new competitors pop up all over the place and the failure of Nike's DTC initiative, as well as competition taking a market share too, how big is Nike's moat really?

35:40And is there even a moat? Let me just say one comment to you because I like your comparison about the running ever. Actually, Nike's revenues are 51.2 billion. So you round it down by 200 million, which just a couple of years ago was on total revenue. So that shows two things. First, On is growing fast. And secondly, as you mentioned, On is still incredibly small. And if they want to continue to grow, starting from a larger base, it will get more and more difficult. But now getting to your question about the mode, because it's a good question. And a couple of years ago, I would have said, of course, Nike has a mode.

36:19And I would still say that Nike has competitive advantages that set it apart from companies like New Balance, Puma, On and Hoka. But the question is, how big is Nike's mode and where does it show in the numbers? Buffett was asked about Nike on several occasions during his annual shareholder meetings in Omaha. And this is the answer he gave. I don't understand their competitive position and the likelihood of permanence of their competitive position over a 10 or 20 year period. As well as I think I understand the position of Brown and Dexter. A few years back when I first heard Buffett say this, I didn't fully understand what he meant.

37:04For me, Nike seemed like an easy to understand business that would fit right into Buffett's love for high quality brands that he gained after his C's candy investment that you and I also discussed on the Hershey episode. But I have since come to realize that a strong brand name is not necessarily a moat. Asper de Motoren, who is NYU's valuation professor, and he's famously called the Dean of Valuation, likes to ask, where does the moat show in the numbers? A competitive advantage needs to show somewhere. It's either higher margins, it's higher returns on capital, or just faster growth. In Nike's case, gross margins, which describe what percentage of revenues remain after you subtract the cost of goods sold, are significantly lower than competitors, standing at close to 45%, while Adidas is above 50%, and On, also due to its premium positioning, exceeds 60%.

38:03This picture changes when you look at the operating margins, where Nike is close to the top of the industry. And operating margins not only include the cost of goods sold, they also include all the costs caused by operating expenses. So salaries, rent and marketing. And while returns on capital have come down since the Donahoe tenure, they still average in the mid-20s, which signals very good use of capital and definitely could be a sign for a strong mode. And still, with less growth and a mixed margin picture, the obvious answer to Nike's mode would be it's in the market share dominance. You just gave the numbers.

38:49Despite growing fast, On and Hoka are both well below 1 % market share and continuing to grow, like I said, will be a lot more difficult in the future. and we just mentioned Buffett and that even he didn't understand the actual power of Nike's brand. He later said that Dexter shoes had been his worst investment ever and that he misjudged Dexter's competitive advantage. What he saw in Dexter was a quality per cost mode which means that they could produce cheaply considering the high quality US production. The problem was that consumers didn't care too much about US production when Chinese producers came and they caught up in quality and offered much lower prices than companies like Dexter, the value proposition just became obsolete.

39:39Nike's mode is based on its marketing success through collaborations with the biggest sports athletes in the world, for example Michael Jordan, but the resulting brand awareness wasn't its only mode. As mentioned, Nike's wholesale dominance was crucial as well. But perhaps that's not an actual mode, it's more of a legacy position that kept working because wholesalers had no incentive to cut the relationship. Unfortunately for Nike, they underestimated their own legacy advantage and they cut it themselves. Perhaps without having the most innovative products, the actual brand value of Nike is less important than one would have thought.

40:24It's probably safe to say that you are not too convinced that Nike has a strong moat. I wouldn't say it like that. I think Nike is at a difficult middle ground. If you would ask 100 people outside on the street to name one sports brand, I would bet the majority of them would say Nike. Even here in Germany where you have homegrown brands like Adidas and Puma, if you're the first brand that comes to mind for every consumer that has to count for something and that's what the market share numbers and also the higher operating margins prove, consumers are still willing to pay a premium for Nike. At the same time the DTC failure showed that Nike doesn't have the same pull as a luxury brand.

41:07In the end Nike has to be product focused If they don't deliver on the product side, their brand power is not enough to keep consumers buying, especially if you want to charge premium prices. And that's where Elliot Hill sees the root cause of all problems. They just didn't deliver on the product side. There were no shoes in recent years for people to actually get excited about. Why do you think Nike has missed this fashion cycle almost and is really no longer at the forefront of innovation? When I think about some of the big trends in athleisure with yoga pants or premium sweatpants or even with Birkenstocks becoming so big, I can't help but think that Nike has completely missed out on what is really popular today, at least in the US, and doesn't really have the offerings it needs to be relevant in 2025 to middle and upper middle class consumers.

42:01You know, it's so funny how you mentioned Birkenstock because those are shoes here in Germany considered to be worn by my grandpa. But apparently in the US and many other places in the world, they're actually getting hyped again. They're very trendy. You know, that's, it's weird for me to hear, but it once again shows how Nike is losing market share with every consumer. But getting back to your question, while there are many factors that played into this, The main ones are the strategic shift to DTC and the over-reliance on Nike's classics. Historically, Nike's CEO were always product-focused guys.

42:40But Donohoe prioritized DTC expansion. And that diverted resources and attention from developing new, innovative footwear. It was about quickly having new product for the online channel. That changed how Nike sold its products. Nike is usually successful in a so-called pull market. And a pull market means that Nike creates the demand. They make great shoes that athletes love and they carry them out into the world. The premise is that Nike launches a shoe first and then creates demand for it. In the last few years, Nike operated in a push market. They tried to guess what consumers want and then created the shoe that fits that preference.

43:25The problem with that is that it doesn't work well for Nike. A company of that size operates just too slowly to be successful at that game. When his shoe is released, the consumer preferences have long shifted. And that's why Nike repeatedly doubled down on successful legacy models like the Air Jordan or the Air Max. And those are great shoes, but if you flood the market with these models, they just lose their appeal. Earlier in our conversation, you gave a little introduction to Elliot Hill and explained why Donahoe wasn't the right fit for Nike. When Hill came back, there was a huge wave of relief for the company and also from Wall Street.

44:11And I've yet to hear anyone that doesn't think Hill is the right guy to run the show. Why is he so beloved and what is his plan for Nike going forward? I repeat myself, but I have to say it again because Nike emphasizes on it so strongly. Hill is a product-focused guy. He knows about the importance of relationships and he immediately traveled the world and visited wholesalers, Nike factories, and also athletes. To help Nike to get back on its feet, he announced the Win Now initiative. In the near term, the strategy is to get back to a culture of obsessing over sport and accelerating the new quote super innovation cycle driven by athlete insights.

44:58On the marketing side, he wants to increase investment in big, bold marketing statements. Just recently, you probably saw it, Nike spent$16 million on its first Super Bowl ad since 1998. and by signing Caitlin Clark on a 28 million dollar deal they doubled down not only on women's basketball but they also secured one of the most popular athletes in the US and a sponsoring deal that is more personal to me is Nike's 700 million dollar deal with the German football national team they ended a 70 year old partnership between Adidas and the German federation and let me tell you it has been a nationwide upset.

45:41I'd imagine that it's not really a big surprise that that is such a big controversy to have an American company displace a German company like Adidas as a sponsor for Germany's national football team, right? That's not a big surprise to me. I can totally see why that spurred some controversy over there. And the timing couldn't have been worse because it was just two or three months before the European Championship in Germany. So the hype was huge. And Nike pretty much made a tremendous deal with that because they just ran into that hype, signing that deal, and the entire country talked about that deal for at least a week.

46:23But getting back to Hill's strategy, there's another pillar. And that's the restructuring of Nike Direct, which he wants to be a premium destination again. According to Hill, Nike has become too promotional. And while I, at least from a consumer perspective, like buying Nike at cheaper prices, I was also surprised to see all the discounts on Nike's products in recent years. I cannot remember that the same happened when I was a kid. And Nike is still seen as a premium brand. So discounts hurt their image, especially on the more fashion-focused products. And Nike's unpredictable discounting also hurt wholesale partners who were forced to adjust prices as well.

47:07Hill is now working on getting these partnerships back on track, demanding a strong commitment and stating that Nike has to, quote, earn its way back to the shelves. When I pulled the numbers for Nike's latest earnings, it was not a pretty picture. It does not seem like Nike is winning now. Would you say that Hill's plan is not working or is there some reason the progress is invisible yet? honestly nike's numbers look pretty terrifying if you look at them for the first time and calling it the win now strategy is probably more of a marketing stunt win later just doesn't have the same flow elliot hill himself said that quote i recognize that some of these actions will have a negative impact on our near-term results but we're taking the long-term view here This fiscal year, Nike's sales declined 9%, which is huge, but still looks decent if you compare to the 30 % decline in profits.

48:10Margins are also down across the board, caused by the measures to decrease inventory and the resulting discounts. And it got even worse because the market hoped to see that the pain is only short term and that the Knox quarter would be better. but instead the outlook for the next quarter is even more grim. Nike's CFO Matt Friend expects further revenue declines in the mid-teen range and gross margins decline of up to 5%. That might not sound too much at first glance, but considering Nike's revenues, a 5 % decrease in gross margin resides in a loss of about half a billion dollars. That makes sense.

48:52And that's sort of what you would expect from a company that it was at one time had very deep moats and is now arguably seeing those moats recede in real time before us. Maybe that manifests as a top line hit that reduces market share or a profitability hit as their pricing power gets reduced and they're making massive investments to try and defend their position. Or maybe, as we've seen with Nike, it's both. And all of that sounds very grim, but I don't think you would pitch Nike today if you didn't think there was some reason to see light at the end of the tunnel, right? That's true. I mean, one portfolio manager said, and I think that's pretty spot on, it's a portfolio manager's dream and an analyst's nightmare.

49:34And there are several super investors who took a position which would kind of suggest that many people see it this way. The most notable one is Bill Ackman, who has over 10 % of his portfolio in Nike. Ackman also has a big stake in the company I'll be pitching next week. But without getting into politics or anything like that. I do think his reputation has maybe taken a bit of a hit in more recent years, but also over the last decade. I did a whole podcast on Ackman a few months back, and it's undeniable that he's a really bright and hugely successful guy, but he's also made some very public mistakes and done some shady things in his more distant past.

50:12More recently, he seems to be spending a lot of time on Twitter, maybe too much time. So I don't know. It doesn't really move the needle for me to hear that he likes Nike, but I guess it doesn't hurt. I mean, I mentioned Eggman because I knew that you would have at least an opinion on him. I'm not big on cloning super investors either, but Eggman is a smart guy, as you mentioned, and we also see other people like Terry Smith buying into Nike. It's not a huge surprise though. Nike's size makes it easy for large funds to invest, and the situation seems just appealing to the typical value investor, which brings us to the difference between a portfolio manager and an analyst.

50:51You have 20-year gross margin lows, significant revenue declines, rising competition and a massive decline in the stock price. As an analyst, there are very few short-term data points that could suggest quick improvements. Analysts need to extrapolate what happens today into the future and they don't have any numbers that they could twist and turn to fit into a bullish narrative right now. As a portfolio manager, though, you can buy into a turnaround story based on one of the best known brands in the world, a new beloved management team, short term headwinds pushing down the stock and a company with a 60 year long track record of excellence.

51:34You could probably say that on this show, we're somewhere in that middle ground between analysts and portfolio managers. We're trying to analyze companies in depth and think about what has been happening recently, but we're also trying to invest with a very long-term mindset as well. And I think on that spectrum, we probably actually tilt a little bit more toward portfolio managers. But so that gives us some leeway to bet on a turnaround story that might take several quarters to unfold. And that's just not something that Wall Street really has a luxury to be able to do, especially Wall Street analysts.

52:06If you're getting judged every quarter and then that's sort of the standard that you work off of, you end up being much more short-term focused. We've already mentioned at length, though, Nike's short-term headwinds. And a big part of that is Nike's overstuffed inventories. So can you help the audience better understand how those overstuffed inventories are impacting Nike's business? Inventories turned into a problem for Nike in late 2022. The pandemic caused some serious supply chain issues, especially for a global company like Nike. And when those problems eased, several seasons worth of product suddenly arrived at Nike at the same time.

52:50For a company like Nike, excess inventory levels are not a good look. They cause costs, block new products, and they are difficult to get rid of. Nike had to heavily discount its products, which pressured margins and diluted the brand. That's why over the last two years, margins have constantly been going down. And instead of new products, Nike had to sell Air Forces and Air Jordans just to make space. Excess inventories can kind of blow up the cash flow statement as you're spending cash on the inventory today, but you haven't been paid for it yet. And the longer it sits, the more working capital you have tied up and the higher those costs are.

53:32Efficient inventory management is just so important for any retailer or brand because not only are there the opportunity costs of having capital tied up in idle inventory, but if you try to unload it, as you mentioned, you're going to be selling everything at a discount and you're hurting your intangible brand value. But just to recap things, we've covered Nike's business, the competition around the brand, the recent market share losses, and Elliot Hill's initiative to try to turn things around. How can we pull it all together? And maybe you can help us here by outlining Nike's valuation and how you came up with an intrinsic value target for the company.

54:14Usually, valuing a company as mature as Nike is relatively straightforward since you have stable margins and a pretty good idea of future growth. Unfortunately for me, a turnaround story like this makes it a bit more tricky. That's why I would like to begin by zooming out. While most short-term trends would point into the wrong direction, it helps getting some perspective. Nike is still the undisputed market leader, as we mentioned multiple times today. They are more than double the size of Adidas, and they generate twice the free cash flow of Adidas, Puma, On, and Under Armour combined. When I say this, my goal is not to make the too big to fail argument.

54:56But after all the bad numbers, I want to make sure no one's leaving today's episode feeling this company won't be around much longer. Now, the investment case is based on whether Nike's sales and margin decline will be short-term or longer-term and eventually potentially even get worse. The second consideration is whether Nike's current stock price reflects a potential rebound. Off the market is still pricing in more downside. The forward PE, which tells you what investors are willing to pay for next year's earnings, stands at 38, which is a pretty high multiple. For context, Adidas trades at a forward PE of 29.

55:38And since I've made an Apple comparison before, Apple trades at 29 as well. And many people even consider Adidas to be priced pretty high at the moment. This alone would suggest another 25 % downside potential. And don't get me wrong, this approach is massively simplified, but it just shows you that Nike is still expensive, at least on paper. And that's the case because analysts expect Nike's earnings to decline by up to 50%. And at the same time, investors are still willing to give Nike the benefit of the doubt, just because of its strong brand and its historic success. And if Nike can stabilize and reach just last year's earnings, the current PE is actually closer to the low 20s, which for a brand like Nike is a pretty good deal.

56:27A major part of the success will be Elliot Hilt's win now strategy, or as we said, maybe win later strategy. While it puts pressure on sales and margins in the short run, I personally believe it's the right strategy for Nike in the long term. He's quickly getting rid of excess inventory and yes that will result in 45 % gross margin declines in the next quarter but it's the only option Nike has to become more agile again. And Q4 should be the peak of sale and margin declines. Then we will see if Nike just suffered from a perfect storm of unfavorable internal and external factors, all of Nike's brand has been permanently damaged.

57:16I know you can be very skeptical about what companies can actually do relative to what they promised to do, Daniel. And in this case, you have a company that's sort of being a skeptic of itself in the short term by delivering some painful news to the market. And yet you know as well as anyone how powerful a strong brand like Nike's can still be. I think Nike's own perception is quite mixed. They are very honest about the challenges ahead and simultaneously very bullish in the long run. And you just said it, I'm usually a skeptic, but I do have a weakness for strong brands. So I personally buy into Nike's long-term optimism.

57:55In my model, I've integrated the management's terrifying outlook in the fiscal year 2025 numbers. And then afterwards, I assume slow but steady margin and sales growth. With my assumptions, it would still take Nike until 2030 just to reach last year's earnings again. Just saying this should tell you that despite my long-term confidence in Nike, it's not clouding my judgment on the future prospect. As a little bonus, Nike also has a dividend and a share buyback program in place. Although the dividend is pretty important at this point so calling it a little bonus might be a bit of an understatement.

58:36I account for those for the buybacks by reducing the share count by 2.5 % annually and I hold on to Nike's history of increasing its dividend despite the outlook. Not by the usual 10 % though, I assume 5 % growth going forward. After adding the cumulative earnings per share and dividends, we still have to put an exit multiple on it. Since it's impossible to know how investors will view Nike five years from now I like to use a range of multiples and I then assign probabilities to each of them. Having done that and then discounting these values back to the present using a rate of 8 % my smart model would suggest a fair value of$73 per Nike share.

59:25And let me immediately follow up with a disclaimer. The shortfall of these models is that they are very sensitive to changes in the assumptions. That's where you have the option to download my model and see for yourself how the price target would change with different growth assumptions or exit multiples or a different discount rate. The estimates for Nike are just brutal. And that's always a tough situation to enter into. I always go back to the idea that we don't have to make any investments at all. We aren't really obligated to make a decision either way. We can continue to sit on our hands until we see something that is really obviously a great pick.

1:00:08And as you know, Daniel, people call that waiting for a fat pitch in investing. If I'm going to take a swing, I don't want it to be at a curve ball like Nike, where the situation is so fluid and can change very quickly for the worse, especially when you can only make a few swings. I want to find the pitch that kind of slips out of the pitcher's hand slower than they meant to throw it. And it's coming right down the middle of the plate. And it's just as easy as it gets to hit a home run off of. And unfortunately, I don't think we found any portfolio companies yet that we've covered on the show that are quite that obvious of a home run.

1:00:48And you might only find a fat pitch like that once a year or once every two or three years. But still, with companies like Airbnb and Alphabet, with the huge network effects they have, it just strike me as simpler things to swing on rather than trying to bet on Nike's turnaround here. Which, for the record, that is not me saying I'd want to bet against Nike. That is the opposite of probably what I'm saying. It's sort of like Hershey. In 18 months, we might be thinking, wow, we really missed out on a chance to buy a company if the stock prices go up 50 % from here, especially since these are companies are clearly not going out of style and are relatively beaten down share prices, at least compared to their own trading history.

1:01:36I actually think that's a pretty good chance that that will be the case with both of those companies. But I just don't know. I don't have any conviction or confidence in that. Personally, I only used to wear Nike as a teenager. And besides my socks, I don't think I've intentionally worn anything from Nike in years. I'd almost be embarrassed to do so because it doesn't feel fashionable in the same way. I almost feel like I've outgrown the brand as an adult now. And I'd venture to say the same is true for many of my friends. Nike just doesn't feel as cool or as relevant as it used to when I was maybe 12 years old.

1:02:15And behind that, not just because of the fact that I've gotten older, I worry there are more structural issues at hand with Nike around risk-taking and innovation and product development that have made it less relevant. And if that's true, who knows how low the floor is over the intermediate term before the business bottoms out? It could be much lower than we think. I'd imagine that their brand could deteriorate much more significantly than it has. And once that happens, it's a very slippery slope that's hard to reverse. And yet to the question of whether Nike has a moat, they've continued to enjoy very positive excess returns.

1:02:51In the last five years, their returns on invested capital, including goodwill, have been 36%. So to me, that is evidence of some kind of moat. It is in the numbers there. And even a wide moat at that. That gives them substantial room for error. And clearly they've made a lot of errors, as we've talked about today. They've made a lot of errors. But when you have substantial competitive advantages, you can also bounce back more clearly. So I don't know, I'm torn. I don't feel strongly either way. But if I can, I'd like to just defer to your judgment here, Daniel, and hear what you have to say to wrap it up here.

1:03:28You know, it's interesting because I see it as an advantage that you come from the States and I come from Germany or maybe get a European perspective on it because I feel like it's different here in Germany or perhaps just my disconnect to the fashion world but I don't see Nike's brand as heavily damaged as you do. I think the odds that Nike will be a stronger company five years from now are pretty good and fashion moves fast. Perhaps Nike is out of fashion today, but one or two good releases and they will be back on top. And if there's a company that has the resources to put it into innovation, into marketing, and all of that to create this hype around the shoe, it's Nike.

1:04:14And still, the stock is very close to its fair value. And we already know that the next quarter will be peak pessimism. And that just makes it difficult to justify starting a position now. I've brought up Buffett's comments about Nike because it beautifully shows the approach that made him the greatest investor of all time. You could easily say that he missed Nike because he didn't understand it. I think that would be a mistake because Buffett understands companies way, way better than any of us. But he understands the power of waiting for the right pitch, just as you mentioned, even better. While Nike had good chances for success back then, it wasn't an obvious pitch.

1:04:57I think the same is still true today. I believe in Nike's long-term potential, but it doesn't strike me as a no-brainer at these prices. If we see prices below$60 and the underlying trends improve, that's very important here. I think the odds change in favor for a Nike investment. But I know that's not a hot take. that's pretty much what everyone is waiting for on the market. And if you just think what everyone else is thinking, that's probably not the best base to make an investment on. I will still be watching the next earnings release closely and I will update my model accordingly. And perhaps we see Nike at lower prices with a better underlying trend and it does become more attractive than it is today.

1:05:42Now, Sean, we got some listeners feedback about our teasers for the next episodes. It seems people like the idea and they actually try to figure it out. So I would ask you to think of maybe three hints to give to listeners who want to guess the next one. And please let us know your guesses in the comments. I gave one earlier, and that is that Ackman is an investor in the company. So that's one. Secondly, maybe I'd add that it's a company involved in logistics. and thirdly the big risk we'll discuss with them is about disruption from ai so i'll leave it there but i'll be curious if people can guess it right all right let's close it with a quote by nike's face of the turnaround elliot hill i thrive in challenging times that's part of why i love sports and business and why i think the combination of the two is so powerful because you don't always win.

1:06:41And when we are not winning, it's how we react that truly defines us. With that said, see you in the next episode. Have a great day.