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Nike China grew, DTC grew less

For the quarter ended Feb 2024, Nike brand sales in China grew 4.5% yoy (overall company sales grew 6% yoy) and Nike brand EBIT in China grew 2.8% yoy.

Not that impressive – as last year’s result should still be impacted by surging covid cases after reopen.

Meanwhile, Nike said it’s growing share, which I believe is true (holding some ground), but also indicates that the overall market is not strong (<6% growth).

Looking at channels, it’s wholesale that’s driving the growth. “Wholesale grew 12%” & “retail sales with our partners grew double digits in Q3 versus the prior year” & “seeing incredibly strong weekly sell-through on these franchises (wholesale partners)” from earnings call.

Another important observation – “physical retail channel in China is stronger than digital.”

Nike will be on Douyin. Not yet on Douyin. However, how should Nike balance gross margin? Live-streaming e-commerce is famous for heavy discounts.

Weijian Shan’s book & the SDB story – very interesting

I didn’t live that era so really appreciate the story.

Some key takeaway so far:

  • in early 2000s: “The market consensus was that China’s banking system was technically insolvent and badly in need of wholesale reforms. The main issue was nonperforming loans (NPLs).”
  • It’s easy to hide NPLs by offering bigger loans; the best practice of “forward looking” was not used in early 2000s
  • Gov will insist on a “good-looking” multiple
  • There was an jokingly bet for a tennis match between Zhou and Summers – “the winner would get to set the exchange rate between the dollar and the Chinese yuan”
  • Much more ups and downs than I imagined
  • “Fortress Besieged” is a really good metaphor..

Be exponential

To grow a number, in math there are addend, or multiplier, or exponent.

Similarly, in businesses, one could grow a company in different ways.

  • Adding a location for Walmart is likely a addend – the addition won’t help/affect other locations
  • Apple introducing Apple Pay is likely a multiplier – value created for all users and profits per users improved across the board
  • Exponential impact is more subtle. I think organization / cultural improvement is likely the case, where better talents are attracted, better outcomes are achieved, and a virtuous cycle is created

Is it possible to replicate this kind of growth for individuals? Or to categorize an individual’s effort into similar buckets?

Here is an example I think of:

  • Reading a book to learn a piece of knowledge is like an addend
  • Reading a book which has impact over a lifetime / all future decisions is like an multiplier
  • Reading a book to form a better map of knowledge is like an exponent, in the sense that future books can be “better” read – you get the point faster, you understand the author better, you connect more dots, etc.

Find the exponent, do the exponential function in life.

People are living far apart nowadays

This is a feeling / theory that I originally thought about during covid-19 – that if you divide people’s risk tolerance by 1-10, before covid it may be ok for people that are 3 ratings apart to mingle (say 5-8), but then only people that are 1 ratings apart are comfortable to be together (say 2-3).

The impact is obvious – if living with less diversified opinions and more like-minded people, people might grow more comfortable within a more similar but narrow circle, and then become less tolerant to different opinions, and might develop a bit biased impression of “mainstream”. It’s a bit like the echo chamber problem exacerbated by social media.

I do feel that even covid-19 is over, the situation is not getting better. Maybe because people are used to being less tolerant over the years. Maybe people just care less about things & people that they don’t see.

It’s not sure if deglobalization is the cause or the result of this.

One things is clear – I haven’t seen much sign of people realizing this subtle change and forces to reverse it.

 

Notes on CATL 2023

`1/ shareholder return is real

annual dividend of 22bn rmb, out of net income of ~44bn net income -> ~50% payout ratio.

this is also due to scaling back of capex (down 30% yoy in FY23)

 

2/ growth has slowed to almost zero

q4 gross profit is up only +2% yoy

q4 net income is -1% yoy

however, with utilization up, 2024H2 and beyond should return to growth

 

3/ barrier in internationalization

both EU and US want to localize the whole value chain, which seems to be a big investment, and involves upstream & downstream companies.

CATL doesn’t see good return and hasn’t done massive capital-heavy investments.

Licensing model is what clients are happy about, which is capital-light for CATL, but growth in net income would be less.

 

Is it possible that US inflation data is “tweaked”?

US reported Feb CPI (inflation) data: +0.4% mom and +3.2% yoy

Core CPI: +0.4% mom and +3.8% yoy

Slightly ahead, which makes it more difficult for Fed to cut rates.

However, is the data a bit inflated? I say possible.

Here is another inflation gauge by Truflation: only +1.64% yoy in March; below 2% in Feb

It’s true that US economy is stronger than most other places around the world.

However, it’s hard not to think that maybe there are some political reasons to “influence” CPI, which can influence Fed decision. After all, Fed is “data dependent”. See this post (Fed is bullied by the market – why?) as well.

Some elements from official CPI data can be more easily to “influence” e.g. used cars.

I will just stop there.

Tesla Shanghai export – not looking great

Global EV demand is weak; Tesla Shanghai’s export also seems to be under pressure.

Tesla Shanghai Jan+Feb export number is down 22.5% yoy.

Overall (export+domestic) Tesla Shanghai Jan+Feb is down 6% yoy.

Looks to be a flattish or small growth year for Tesla SH in 2024.

Btw, looks like Elon Musk is really focusing on Grok, SpaceX, and Twitter.

Why property price to income ratio this high?

China doesn’t have a nationwide recurrent property tax that applies to all residential.

  • in some cities with property tax experiment, usually certain area is exempted from taxation, e.g. Chongqing is 180 sqm

Hukou policy means residential property comes with other value. Not owning one will cause inconveniences: e.g. renting is not similar to ownership in education etc.

Renter’s right vs landlord is not like what usually seen in mature markets.

Most people don’t pay tax on rental income.

One-child policy plus decades of economic growth created massive buying power for this one-child generation. When you have 4 parents supporting the new couple to buy 1 home, that purchasing power is hugely inflated.

Local gov’s budget is partially financed by selling lands (use rights) for residential property development. High price -> higher budget.