Dip Brings Out Best In Nike

Jun.29.12 | About: Nike Inc. (NKE)

Nike (NYSE:NKE) fell 13% to $84.75 in the pre-market trading, after the company announced its quarterly and full-fiscal year results.

Here is a brief summary of its recently announced results. The table compares the quarterly results of the company versus the expectations.



% miss






$6.5 bn

$6.53 bn


Click to enlarge

Earnings Review

Nike's profits fell in the last quarter, even though revenue rose by 12 percent to $6.5 billion, unable to beat analyst projections of $6.51 billion. The rise in revenue was a result of higher revenue across every Nike Brand geography and product type. The company saw its revenue grow in China to $667 million. However, the company expects growth to moderate as it has too much inventory in the region. Sales from the area increased 25 percent in the previous quarter. Gross margin declined by 1.50%, largely due to higher product costs and investments in its digital business. The unanticipated custom assessment in some emerging markets also led to the 1.5% decline. NKE's net income decreased by 8% in the last quarter compared with 4Q2011, largely due to a $25 million charge related to the restructuring of its business in Europe, and increased spending on marketing by 23% from the last quarter of the previous year. The company posted an EPS of $1.17, down 6% from the previous quarter's $1.24, unable to beat analysts' estimates of $1.37.

A look into the fiscal full-year results reveals that revenue for NKE is up 16% to $24.1 billion. NKE's brand revenue rose 15 percent largely due to growth in all geographies and product types. However, gross margins declined by 2.20%, largely due to higher product costs and higher discounts. The aforementioned factors more than offset the positive effects of price increases. Demand creation expense also increased by 11%, which was less than the revenue increase for FY2012. Net income increased 4% to $2.2 billion largely due to growth in revenue in all geographies and product lines. Earnings per share increased in the year ended 2012 as well, owing to a higher net income and a decline in the number of shares outstanding. NKE reported an EPS of $4.83, up 8% from the previous year, however, it was unable to beat the consensus estimates of $4.93, providing a negative surprise of almost 2%.


It was the first time since the last two years that NKE missed the estimates. The company saw slowing growth in China in the last quarter, with orders coming in at 2%, which were expected to be somewhere in the range of 10% to 15%. Overall, the announced results were disappointing weighing down on the company's stock. However, we maintain our positive outlook for the company as it has consistently shown growth in its earnings for a number of years, which has been equally matched by its revenue growth. It has also consistently beaten analysts' estimates in the past, which is why the current miss has come as a shock to many. Moreover, one-off charges related to its European division and marketing costs related to the summer Olympics led to the recent decline in quarterly earnings. It has a strong business model with strong financials and a worldwide presence, and we expect it to do well going forward. Despite the stock losing value in the past three months, it has outperformed over a one-year period. It currently trades close to its 52-week low of $77, which we believe to be a good entry point as the negative earnings results have been priced in.

To get more detailed analysis on NKE have a look at our previous article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.