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Nike: Don't Do It
Earnings, China, Supply Chain
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Good Morning!
Happy holidays everyone! The finance world is buzzing this morning. Here’s what we’re getting into this week: 👇
👉 Nike releases quarterly results highlighted by massive cost-cutting measures
👉 China strikes its regulatory hammer on gaming… again!
👉 Shipping sent into disarray due to global supply chain disruption
NIKE: Strategic Pivot Unveiled
On Thursday, Nike announced a strategy to reduce expenses by ~$2 billion over the next three-year period, simultaneously revising its revenue forecasts downward.
The athleticwear giant now anticipates a modest growth in its annual reported revenue, estimating an increase of around 1%, a notable adjustment from its earlier projection of mid-single-digit growth. For the current quarter, which spans the latter half of the holiday season, Nike predicts a slight downturn in reported revenue, citing challenging comparisons with the previous year. However, it foresees a modest rise in sales, by low single digits, in the final quarter.
Despite these changes, Nike maintains its expectation of gross margin expansion, projecting an increase of 1.4 to 1.6 percentage points. Excluding the costs associated with restructuring, the company remains confident in achieving its annual earnings forecast.
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Source: Inc. Magazine
Nike's cost-reduction plan involves several key measures. The company intends to streamline its product range, enhance automation, and more effectively utilize technology. Additionally, it aims to simplify its organizational structure by minimizing management layers and leveraging its size to boost efficiency.
The savings accrued from these measures will be strategically reinvested. Nike plans to channel these funds into driving future growth, spurring innovation, and bolstering long-term profitability.
Earnings per share: $1.03 vs. $0.85 expected
Revenue: $13.39 billion vs. $13.43 billion expected
🎯GRIT TAKE: Nike stock is getting crushed in pre-market trading due to… upgrade to VIP to read the full GRIT take.
CHINA: Regulatory Gaming Shockwave
The global investment community was taken aback by China's recent implementation of stringent regulations aimed at restricting gaming companies' ability to encourage extensive spending and engagement from players, not limited to minors. This move led to a significant downturn in the gaming sector, with major players like Tencent and NetEase seeing dramatic declines in their stock values. Tencent's shares plummeted by 12% in Hong Kong trading, marking its most severe drop since 2008, while NetEase experienced a record slump, dropping by 25%.
The repercussions of China's regulatory decision extended beyond its borders, influencing related stocks across a range of international markets, including Europe, South Africa, South Korea, and Japan.
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Source: Reuters
The investor community reacted sharply to these developments, partly due to the unexpected and sudden nature of the new rules. The regulations' broad scope and vague language left many uncertain about their implications and the potential wider impact.
This latest regulatory shift adds to the challenges faced by investors in China, concluding a year marked by difficulties and setbacks.
SHIPPING: Global Supply Chain Disruption
The recent decision by several shipping companies, including industry giant Maersk, to reroute their vessels away from the Red Sea due to potential threats from Houthi forces has thrown global logistics into disarray. This shift is creating a double-edged crisis for logistics professionals worldwide, causing a significant spike in sea and air freight costs, coupled with cargo delays and stagnation issues. This upheaval strikes a fresh blow to the global supply chain, which is just beginning to recover from three years of relentless inflation and disruptions caused by the COVID-19 pandemic.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/064a6c2e-593d-4597-ab23-129a73f041cd/Screenshot_2023-12-22_081228.jpg?t=1703250807)
Source: CBC
The impact of these diversions was starkly highlighted this past Thursday, with a sudden and sharp increase in ocean freight rates. Recent reports indicate that the cost of transporting a 40-foot container from Shanghai to the United Kingdom has escalated to an unprecedented $10,000.
This is a significant leap from just a week earlier when the rates were considerably lower – $1,900 for a 20-foot container and $2,400 for a 40-foot container. In a related development, trucking fees in the Middle East have also surged, reportedly doubling, adding further strain to the already stressed logistics industry.
Headlines You Need To Know: 🎙
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Saudi Arabia and Russia extend oil supply cuts to end of year
US aims for tougher sanctions at certain banks to hurt Putin
Parents are risking their retirement to support adult children
Wall Street on edge before key inflation number
UK inches closer to technical recession
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Arnault's Bold Merger Move
You might have heard of brands like Louis Vuitton, Dior, Hennessy, Dom, and Sephora, but the story behind them is wild.
Bernard Arnault started working at his father’s company, where he was able to acquire the failing luxury Dior brand for around $60 million and fired almost 10,000 people immediately. Within one year, Dior was making $100 million alone in profit.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/239d1b13-c99e-49b7-9f69-f6e39e8fae6a/img_125555_bernardarnault_gettyimages-160724991-2048x2048_s.jpg?t=1703249192)
Source: Forbes
But this is where it gets interesting. Bernard Arnault starts aggressively buying shares of Louis Vuitton, eventually becoming the majority shareholder. In 1987, Louis Vuitton and Hennessy had a massive merger. However, the two CEOs of each company cannot get along. Arnault removes both of the CEOs, naming himself the new CEO of the newly merged LVMH. Today, the company is worth $438 billion, making him the richest person in the world.
Chart of the Day
📊 This data shows the value AI could create for banks… Perhaps making some jobs redundant!
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Source: CNBC
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GRIT Meme of the Day 😂
Tag GRIT Capital on social media for a chance to be featured in our meme or Tweet of the day in our GRIT daily newsletter! 👇
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Source: @wallstreetoasis
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