Nike's Q3 Results Are Good, But Puma Looks Better

Mar. 25, 2010 10:06 AM ETNKE, ADDDF, PMMAF
Véronique Adam profile picture
Véronique Adam

Stock price: $74.2
Conclusion: Good resistance in Q3. We are slightly upgrading our valuation range to $72-$77 in light of improved worlwide future orders. Nonetheless, our pricing range suggests that Nike (NKE) stock price looks close to its fair value.

Q3 results: sales up 7% reported (+2% organic-down 3% 9m), EPS adjusted up 2%, slightly down 9m. Guidance F10: Revenue slightly below last year levels, higher gross margin, low single digit increase in SG&A.

Good results? Yes. Outstanding? No.

  • Q3 showed a return to slight growth (2%) which is clearly encouraging. Looking at the 9m performance, Nike revenues fell 3%, which is better than Adidas (OTCQX:ADDDF) down 6% in F09, but only slightly better than Puma (OTCPK:PMMAF) (down 3.7% in 2009).
  • We are more impressed by Nike’s achievement on the bottom line front. Nike succeeded in enhancing gross margin by 50bp in the first 9m, while its competitors Puma and Adidas lost 50bp and 330bp respectively in 2009. Nike managed to preserve that gain at the operating margin level thanks to a tight cost control. SG&A declined in line with reported sales, despite a sharp increase in Q3, related to marketing expenses, retail spending and compensation.
  • Where does Nike stand from a profit margin standpoint ? YTD Gross margin at 45.9% is in line with Adidas (45.4%) but 5.4 points lower than Puma (51.4%). Puma is more exposed to lifestyle apparel than Nike, where pricing is better. However, Nike’s control over selling and administrative expenses looks much better than peers, enabling it to achieve 13% operating margin, in line with Puma.

All in all, we are looking for stable sales and earnings for F10.

Looking for mid single digit growth in sales and low double digit growth in EPS for fiscal 2011.

  • Worldwide future orders scheduled for delivery from

This article was written by

Véronique Adam profile picture
Véronique Adam graduated from Sciences Po Paris. She is a member of the French Financial Analysts Association. Véronique has spend 15 years at JPMorgan, as head of European research team in Food and HPC. She was ranked among the top three analysts in the sector during that period (Institutional Investor ranking). She joined the buy side covering the consumer sector for Amber Capital NY. She launched Pablofinance in 2009. Pablofinance focuses on fundamentally driven analysis in the consumer field, including food, beverages, HPC, luxury stocks and sporting goods . Each comment is based on in-depth valuation and forecasts models helping to assess and select the most attractive stocks in the sector.

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