MONTAUK, N.Y. (TheStreet) - Let's not take anything away from Nike's (NKE - Get Report) 4th quarter earnings, reported after the stock market's close yesterday. Considering the teetering nature of the global economy, Nike's results were thunderously good.
At the same time, we should display a teaspoon of long-term caution on one particular issue--an issue the media is hardly touching upon. Nike cut marketing expenditures to ribbons this quarter. They were down 7%, to $617 million.
In this short run, this was probably a good tactic. Obviously, raw material expenses are rising and this is problematic for Nike. Even with a broad array of expense cuts, gross margins were down. But marketing expenses are a key long-term driver of Nike's sales. Let's face it: you are not going to want to "Be Like Mike" without hearing the jingle force fed down your ears whenever you watch a ball game.
OK, the reference is dated--but I love that jingle. And granted: lightening up on marketing won't tank Nike overnight. As traders legitimately celebrate these earnings, though, they have to keep an eye on the horizon: Nike is a marketing machine and you have to keep gassing it.
Perhaps it's because the effects of marketing are distant or that Nike refers to marketing costs as the somewhat puzzling "demand creation expenses," but the media is ignoring this important long-term variable. The New York Times doesn't mention it. Instead, it credits a vague "demand" for surmounting higher costs. http://www.nytimes.com/2011/06/28/business/28nike.html?partner=yahoofinance
For one, a lower marketing budget also helped offset, say, material costs. But also: what creates demand long-term for Nike better then marketing? The
Wall Street Journal
and The Financial Times also missed the opportunity to alert traders to this potential long-term danger. Even though it didn't go into a shred of detail, Bloomberg at least mentioned the reduced marketing costs. Considering the long-term importance of the issue, I want to be like Mike...Bloomberg. http://www.ft.com/intl/cms/s/0/8aeda42a-a10d-11e0-9a07-00144feabdc0.html#axzz1QYup7rmT http://online.wsj.com/article/SB10001424052702304314404576412150730151730.html?ru=yahoo&mod=yahoo_hs http://www.bloomberg.com/news/2011-06-27/nike-reports-profit-of-1-24-a-share-exceeding-estimates-shares-advance.html?cmpid=yhoo