Nike Set To Continue Topline Expansion As It Focuses On Women's Business

| About: Nike Inc. (NKE)
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Summary

Nike expects its women’s business to outpace growth of the men’s business. The company has also raised its expected revenue from the women’s business to $7 billion by 2017.

To develop its women’s business, Nike has launched a women’s sports store in Newport Beach, California. The company launched its second women's store in Shanghai.

Revenues for Q1 FY2015 rose by 15%, with Western Europe and China’s revenues increasing by 25% and 20% respectively.

Nike shares are overvalued but have growth potential. Nike has been able to expand profits by between 10%-14% over the past years and has a strong balance sheet position.

It is a share that is best for inclusion in a portfolio that is designed to be dividend focused and provide high growth for investors.

Nike (NYSE:NKE) takes another step towards achieving its ambitious annual revenue target of $36 billion by fiscal year 2017. The step taken by the sportswear company is one that is now focusing on expansion of its women's business to drive top line growth in the coming months. The women's business was one that registered rapid growth in the previous quarter as well. In addition to this, the company noted that its NIKE+ Training Club has now become a personal trainer for women all over the world. The company leaded in the women's market by delivering innovative products for this specific business as well. In light of this performance, Nike now expects its women's business to outpace the growth of the men's business. In addition to this, the company has also raised its expected revenue from the women's business from $5 billion to $7 billion by 2017.

One of the latest developments in the company's renewed interest in developing this particular segment is the launch of its very own sporty women store, focusing entirely on selling female gear. Nike is now following in the footsteps of its rival Lululemon Athletica (NASDAQ:LULU). The store is also set to provide training classes, with a well equipped studio for yoga as well. Special events and guest speakers are also on the agenda for this new store. While the company aims to wait patiently to see how this new outlet in Newport Beach performs before venturing into launching more outlets in the US, the company launched its second women's store in Shanghai.

Q1 FY15 Result Highlights

The company reported its results for the first quarter ended on 31 August, 2014, stating a 15% rise in its recorded revenues, which went up to $8 billion for the quarter. Revenues for the sports company increased in all of its geographical regions, with Western Europe stealing the show and registering a phenomenal 25% hike in revenues. China followed in the race, noting a 20% increase in revenues.

Net income amounted to $962 million registering a 23% increase over the results in the corresponding period last year. The company was off to a good start for the year as its earnings per share rose by nearly 27% to $1.09 per share.

Gross margins improved as they noted a 170 basis point increase, coming in at 46.6%. This improvement was a result of the higher average prices of its products and better product mix consisting of higher margin products.

The company also returned value to its shareholders during the quarter, in the form of share repurchases totaling 10.6 million. This was worth $819 million and is part of the $8 billion plan of share repurchases that was approved back in 2010. Till date, a total of $4.2 billion has been spent and 62.5 million shares have been repurchased by the company.

What does the future look like?

Currently, Nike's shares trade around to $99 mark, close to their 52 week high in the market. With a P/E ratio of 31.10, an investment in these stocks would not be initiated by many, especially because share prices are now higher than they have been in the past decade or so. Having said that, Nike shares seem to be more expensive right now than it has ever been in the past, indicating that those who already hold shares of this company could be looking at a buildup in their wealth, even if shares trade at such high levels at the moment.

This exceptional share price level is not without reason. Over the past decade, the company has been able to expand its profits by between 10%-14%. Their top line growth has been phenomenal, having increased by nearly 15% in the recently concluded quarter alone. Though this might not be very convincing for those who analyze this statistic independently, this figure becomes more meaningful once shareholders grasp that the earnings per share of the company are highly correlated with the top line performance for the sportswear company. Over the past decade, Nike has reported top line growth that has exceeded 10%, alerting many shareholders that this company holds the potential to post better results in the future.

An analysis of the company's balance sheet position further reaffirmed that the company is indeed a strong one, and positively a viable investment option for many. Conservative in its nature of acquiring debt; its debt amounted to almost $1.3 billion. The company is cash rich with balances of $4.5 billion.

Moving on to the company returning value in the form of dividends; Nike has been paying out dividends for the past 27 years since 1987. Dividend payments have been announced without reductions, noting an 8,900% increase since the first dividends that were paid out by the company.

What further fuels investor interest in the company is that it continues look for opportunities that could further fuel top line growth in the future. An initiative to expand its women's wear business is one of the many examples that are likely to be announced in the future as well. Given that the company has raised its expectations of the revenues to be generated from this segment alone, the increment could not only add substantially to revenues recorded in the future, but could also allow the company to satisfy its appetite for the large revenue target that it has set for itself for 2017.

Despite being overvalued, the stock is ticking all the right boxes for inclusion in a portfolio that is designed to be dividend focused and provide high growth for investors. For buyers, it would be advised that they wait only a little for a slight dip in share prices before they invest. With no major news in view that could lower share prices drastically, a slight dip would be the only opportunity that potential investors will find for these shares. Those who already hold shares seek to gain substantially for an investment they made earlier, as the company continues expand its top line and report higher earnings subsequently.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.