Earnings this week from Nike Inc. won’t just give us a glimpse at consumer sentiment, but a potential blueprint for overcoming industrywide hurdles such as broken supply chains, the effect of a strong U.S. dollar and weakened growth in emerging markets. Today, we look at why the retail giant is a bellwether for the sector, and how it opens a window onto the global economy’s uncertain future.
In the news
- Canadian steel suppliers push for more protectionist approach to EV battery strategy
- Businesses owe $19.4-billion in unpaid sales tax, CRA reports
- Canada to announce tariff plan for Chinese EV, battery imports after moves by U.S., Europe
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Capital-gains change takes effect
A higher inclusion rate kicks in on Wednesday.claudenakagawa
No gain, no pain
The Liberal government’s controversial plan to change Canada’s capital-gains tax for the first time in 25 years takes effect on Wednesday. From that day forward, the inclusion rate – the portion on which tax is paid – will rise to two-thirds from one-half on capital gains realized by companies. The increase will also apply to individuals, but on capital gains above $250,000.
The change was introduced as part of the government’s April budget, which outlined $53-billion in new spending over the next five years. Ottawa said $19-billion in spending that it has earmarked for housing and affordability policies will be offset by the tax change.
The hike was met with criticism from corporate Canada. Several major business groups called for Finance Minister Chrystia Freeland to reverse the decision, saying they were alarmed by the potential impact on Canada’s competitiveness. And the Council of Canadian Innovators called the hike “disastrous” for investment, arguing that it will significantly affect the ability of homegrown businesses to access capital.
“You cannot tax your way to prosperity,” the council wrote in an open letter to the Finance Minister. “But in the 2024 federal budget, we see a government trying to hike taxes on investment. Anybody with experience in entrepreneurship and investment can see how this will stifle growth.”
The change also attracted pushback from doctors, miners, cottage owners and the country’s largest stock-exchange operator. Freeland has pushed back on the pushback, insisting that the change won’t affect 99.87 per cent of Canadians.
Spotlight
Waiting for the next shoe to drop
Nike's Olympics athletic kit launch in Paris. For many U.S. athletes, not all of its offerings were a good fit.Stephanie Lecocq/Reuters
Nike is aiming to get back on track in its quarterly earnings report on Thursday after running into economic headwinds and controversy over two high-profile launches.
- In April, a women’s track and field kit showed a high-cut bikini line, sparking criticism from several athletes who questioned its functionality. “They are absolutely not made for performance,” U.S. steeplechaser Colleen Quigley told Reuters. Others were more direct.
- Major League Baseball said changes are coming after fielding mounting criticism over Nike’s new uniforms. Among the criticisms from fans and players: mismatched grey top and bottoms, and pants that left little to the imagination when wet.
Sizing up the Swoosh
Given the global scale of its operations, Nike can be seen as a bellwether for the larger economy. Analysts and investors will largely be looking past the quarter-specific results for signs that the company has a solid long-term blueprint for overcoming cracks in the supply chain, weakening consumer demand and a shrinking footprint in major markets like China and Europe.
They might be giants Nike’s dominant market share has historically given it the power to influence pricing and industry trends. This dominance allows it to “exert significant influence over suppliers, retailers, and even sporting events.”
Mirror, mirror For better and worse, the apparel giant’s success reflects global consumer confidence and disposable income.
Stretching a dollar Its fortunes are also linked to the strength of the U.S. dollar. When the greenback is high, the price of U.S. goods becomes more expensive abroad. More than half of the company’s sales come from outside the U.S.
So Nike, with $2-billion burning a hole in its pocket, is very compelling. They have a great brand, they’ve acknowledged a struggle with innovation, but now they’re coming back at it swinging.”
— BofA analyst Lorraine Hutchinson
Long jump Lorraine Hutchinson, a Bank of America analyst who covers Nike and recently upgraded shares in the company to a “strong buy,” said in an interview that she’ll be tracking what the company says about its plans in major markets like North America, Europe and China as it looks to clear hurdles facing companies worldwide.
“Nike has been very open about the broader challenges it is facing, and how it plans to overcome them,” Hutchinson said. A part of that acknowledgement came last year, when the company announced that it would cut US$2-billion from its operating costs by “reducing management layers,” simplifying its product line and accelerating automation.
“With high conviction, I think they will reinvest all of it,” she said. “So Nike, with $2-billion burning a hole in its pocket, is very compelling. They have a great brand, they’ve acknowledged a struggle with innovation, but now they’re coming back at it swinging.”
- Some key innovations are likely to come in the form of new women’s apparel and enhanced running shoes, a market in which Nike has conceded space. Hutchinson said she expects the products to hit shelves over the next six months to a year.
- Nike is also hoping product launches and marketing campaigns tied to the Summer Olympics will boost sales.
I’m not a film critic. But the 2023 film Air, which tracks the company’s efforts to woo an emergent Michael Jordan, was fine. It was absolutely fine. A layup. But ninety-three per cent on Rotten Tomatoes? C’mon. I have actual rotten tomatoes with more substance. Disagree? E-mail me: cwilsonsmith@globeandmail.com.
Charted
Companies retool CEO rewards
Stock options – for years, the primary way companies tied executive pay to performance – are increasingly out of favour at Canada’s biggest corporations. But it would be premature to write their obituary, David Milstead reports. They’ll still have a place in many pay packages, particularly at smaller companies.
These conclusions are part of The Globe and Mail’s annual review, done in partnership with consulting firm Global Governance Advisors, of how, and how much, 100 of Canada’s biggest publicly traded companies are paying their chief executive officers. The median figure for total CEO pay among the Top 100 in 2023 was $8,583,258 in salary, bonus, stock awards and other compensation. That’s just a hair below the $8,598,141 in 2022.
On our radar
Rate After the cut, Bank of Canada Governor Tiff Macklem hopes to maintain interest at the Winnipeg Chamber of Commerce this afternoon. The bank’s next decision is July 24.
Read As experts track the spread of bird flu, one stock is serving as financial markets’ barometer of risk.
Reguly European airline mergers are en route, risking the creation of a U.S.-style oligopoly with cruel ticket prices.
Zoom in Earnings include FedEx and Alimentation Couche-Tard Inc. tomorrow; BlackBerry Inc. and chipmaker Micron Technology – one of the “three horsemen of AI” – on Wednesday; Nike after close on Thursday.
Zoom out Statistics Canada will release its latest reading for inflation on Tuesday and its monthly GDP report on Friday. The U.S. reports residential housing sales on Thursday and Advance Economic Indicators the day after.
ICYMI As the broader carbon market grapples with a crisis of confidence, the credibility of a major carbon credit program in B.C. is being questioned, Wendy Stueck reports.
Remembrance James K. Irving’s multigenerational business leaves a lasting impact on New Brunswick.
Markets this morning
Global shares steadied ahead of U.S. price data that investors are banking on to show a renewed moderation in inflation, which could reinforce market bets on a Federal Reserve rate cut as early as September.
Overseas, the pan-European STOXX 600 was up 0.48 per cent in morning trading. Britain’s FTSE 100 rose 0.53 per cent, Germany’s DAX gained 0.62 per cent and France’s CAC 40 added 0.8 per cent.
In Asia, Japan’s Nikkei closed 0.54 per cent higher at 38,804.65, while Hong Kong’s Hang Seng ended marginally lower at 18,027.71.
The Canadian dollar traded at 73.11 U.S. cents.