ResearchThree Things (7/1)

Three Things (7/1)

Jul 1, 2024

Nike stock drops

Nike’s stock dropped 20% on Friday after announcing abysmal FY 2025 revenue guidance. The stock lost $28 billion in market value, and investors are becoming increasingly worried about the direction of the company. CEO John Donahue has credibility issues, as Nike is losing market share to innovative competitors like On Running and Hoka. Softer sales in the fourth quarter of 2023 prompted the management team to roll out a $2 billion, three year cost-cutting plan.

Since being criticized for its ‘lack of newness,’ Nike is aiming to use 2024 as a transition year to increase the speed at which it gets products to customers. The shoe company is a case study for how the business behind a well-known, high quality brand can malfunction with weak management and a sluggish pace of innovation. Management will need to flawlessly execute its transition plan and cost-cutting program in order to win back shareholder trust.

Inflation data

On Friday new inflation data was released that showed the core personal consumption expenditures price index increased 0.1% for the month and was up 2.6% from a year earlier. The highly anticipated print, which exposes price changes passed on to consumers, was in line with expectations and will help the Fed make its next monetary policy decision. May marked the lowest annual increase in over three years, which means the central bank is getting closer to achieving the price stabilization portion of its dual mandate.

Since the Fed is also meant to promote maximum employment, the dual mandate certainly requires a balancing act. Although the economy has withstood the ‘higher for longer’ environment well, unemployment, which hovers around 4%, has slowly started to increase. Monetary policy is aimed at slowing growth just enough to reduce inflation without initiating a recession, which is a challenging feat. It’s up to the Fed to decide when the economy has had enough, and while the data is promising, the path forward remains uncertain.

Record travel this summer

Air travel through the rest of the summer is expected to hit record highs, as TSA forecasted they will screen 32 million travelers between Friday, June 28th and Monday, July 8th. The rush comes at a challenging time for both airlines and airports given supply chain delays, lack of air traffic control workers, and Boeing safety issues. Throughout the week leading up to Memorial Day and before summer had even started, over 6,000 flights were delayed.

Despite the many external forces at fault, passengers always blame the airlines when it comes to delays and cancellations. The airline that is best able to manage the customer experience, arguably one of the most important elements to a successful airline, by minimizing problems should rise above its competitors. Even after horrific travel experiences, passengers will continue to fly and pay for flights with the airline they believe is most reliable.


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