Good Q1 update from Nike A positive Q1 update from Nike last night, helped by a stronger-than-expected gross margin. Q1 total revenues +7% on a reported basis, and +10% at constant currency. FY guidance was increased with reported revenues still expected to be up by mid-single digits, but this incorporates an improved constant currency growth rate offset by a higher FX headwind. In terms of key geographies for JD, Nike’s Europe, Middle East & Africa total Q1 sales +12% (footwear +13%/apparel +10%), at constant FX, with North America sales +4% (footwear +4%/apparel +2%). Positive comment on key market trends for JD There were plenty of positive comments on underlying market trends, supportive of JD’s growth prospects and its relationship with Nike. Nike's management commented that it sees North America being able to sustain strong, health, mid-single digit growth and that ‘You’ll see slightly higher growth rates in North America over the balance of the year than what we delivered in Q1.’ ‘Growth in Q1 was slightly impacted again by some year-over-year comparisons not just in the jersey business, but also the timing of innovation launches in Footwear, and then again, with that kind of extended back-to-school season spanning over Q1 and into our Q2, which begins in September. So again, we see tremendous momentum in North America.’ On its North American strategic partners, of which JD/Finish Line is one, Nike said it was seeing ‘high-single digit growth in differentiated retail with our strategic partners’. On Europe, Nike commented that its strategic partnerships with JD and Zalando are also ‘contributing to our strong, sustained growth in Europe’. With regards to future product pipeline, Nike’s management described ‘the excitement meter’ as very high over the next year as it ‘looks at the Summer Olympics as term papers due’ when ‘we bring our best work not only from a brand standpoint, but certainly from a product standpoint’. On increased US import tariffs from September 1st, these will impact Nike from Q2 to Q4 with the impact more pronounced in Q2 as it will have had less time to manage potential mitigating levers. These are in the raised FY gross margin guidance. JD’s growth prospects remain undervalued We continue to believe JD Sports’ valuation (CY20e PE 19.8x; FCF yield 8.5%) does not reflect its longer-term growth opportunities nor its strong cash generation. After a strong H1 performance, risk to forecasts remains on the upside.