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Nov 2, 2016

S3 BLACKLIGHT: Nike Short Interest up 150% as its Stock Price Falls 20%

Nike Inc’s (NKE US) recent quarterly report showed gross revenues up 6.5% year on year, EPS at $2.22 up $0.04 year on year and margins that have increased over the last four quarters. The one major negative was an 11% increase of year on year inventory levels which may hurt future margins as Nike discounts its overproduction to clear inventory levels. Nike remains the undisputed leader in the athletic apparel & footwear sector with $32 billion of annual sales, which is larger than Under Armour (UA US), Adidas (ADS GR) and Lululemon (LULU US) combined.

Two thirds of Nike’s revenue comes from North America and China where they are seeing weaker sales and a drop in future orders due to changing styles and stronger competition. Nike has found it difficult to create new game changing product lines lately and increasing prices to bump up gross revenues is no longer an option with the likes of Under Armour’s CEO Kevin Plank willing to sacrifice short term revenues for long term market share by undercutting Nike’s pricing.

With added competition comes price instability and Nike’s stock price is down 20% in 2016 after being up 30% in 2015. Nike’s 2015 year-end short interest was $742 million and increased $134 million, or 18%, by the end of the 2nd quarter of 2016. Short sellers were more active in the 3rd and 4th quarters with increases of $496 million and $480 million respectively. Nike short interest is now at its historical high, $1.9 billion, up 35% in the 3rd quarter and up 150% for the year. Shorting velocity has increased over the last few days as Nike’s stock fell below a $52 support level and we should see short interest top $2 billion by the end of November if short selling continues at this pace.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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