By Neal Rau
Shares of Nike Inc. (NKE) have surged to all-time highs after its 2014 first-quarter results were released in late September. The company's brand has never looked stronger, with highly recognizable names like Converse, Chuck Taylor, Hurley, All Star, the stock is up about 40% YTD, and the company said it expects 8% increase in its orders for the current next quarter, but is it too late to buy shares of NKE at these levels?
The athletic apparel giant's fiscal first-quarter net income totaled $780 million, or 86 cents per share compared to $567 million, 63 cents a share in the same period a year ago. Net income was helped by easing costs for raw materials and selling fewer items at a discount, partly offset by higher labor costs and the stronger dollar.
Nike's fiscal 2014 first quarter was very impressive, and one brand that stood out was Converse, as the brand represented a 16% gain to $494 million for the quarter. Amazing when you consider Nike acquired Converse in 2003 for just $305 million. Basketball and Running continues to grow at double-digit rates, and offer the company some of its best margins. Online sales represented about 12% of sales, which are another aspect of the business that brings high margins. According to the real-time trading report published by Stock Traders Daily, shares of NKE are trading near long-term resistance. The shares briefly broke above resistance after earnings were released, but have since fallen back below resistance and into the channel.
Nike has been able to keep margins strong with its innovative new products, including updates to the Flyknit line of shoes, to capture a greater share of the market for high-end running gear. Flyknit shoes, which feature upper portions woven from a single thread, sell for $150 or more, helping Nike offset higher labor costs.
Collectively, these strategies position the company well among competitors such as Adidas AG (OTCQX:ADDYY) and Brown Shoe Company, Inc. (BWS), Crocs, Inc. (CROX). Recently, Adidas, the world's second largest sporting-goods manufacturer, behind Nike, announced that its 2013 profit estimate was going to be lower than it had previously predicted. On the news, shares dropped almost 6% to hit a new three-month low. The company cited three major issues in its forecast, the first was the strength of the euro, the second was unforeseen distribution issues in Russia, and finally its struggling golf weakness in the global golf market. Meanwhile, Nike golf revenue grew by double digits during its last quarter.
One competitor that has enjoyed similar success is Under Armour Inc. (UA), as both companies have easily beaten the S&P 500 year to date, with Nike up 40% and Under Armour up 70%. Under Armour's stock made a big move in mid-July, when it announced a blowout quarter. The only chink in Nike's armor was China, as the company managed to boost income in all its geographic divisions except China. China saw a modest 3% sales decline, but Nike has been refreshing its product lines there, and has seen some progress in the last year.
Nike is trading near all-time highs and its brand looks better than ever. However, price matters and the stock is already up 40% YTD, and up 60% since the beginning of July. It is worth noting that Blair Donald, who is EVP & CFO at Nike, recently sold 66,000 shares at $74.85 per share for a total value of $4,940,100.
Based on the real time trading report offered by Stock Traders Daily, the stock recently broke above resistance, and the move was initially bullish, as it converted that resistance level into a support level temporarily; however, that did not last long. Afterwards, the stock reversed back into its channel, and once it did, sell signals surfaced. As long as the stock remains below long-term resistance, we expect lower levels and a test of support. Based on price and a current test of resistance, we are sellers, as long as the stock remains below the resistance levels offered in our trading report.