Nike (NKE) Rallies on Strong North American Sales
Footwear and sports apparel retailer Nike (NKE: Charts, News) rallied sharply last week, after the Beaverton, Oregon-based company reported its second quarter earnings. For its second quarter, Nike reported adjusted earnings of $1.14 per share, or $384 million, on revenue of $5.96 billion.
Analysts had expected Nike to earn $1 per share on revenue of $6.01 billion. This was an 18% decline in EPS and a 7.4% increase in revenue from the prior year quarter. Nike's earnings of $1.14 per share excluded $137 million in losses from its Umbro and Cole Haan brands, which the company is in the process of selling. Nike attributed its strong earnings to increased sales in North America, which offset losses in Asia and Europe, as well as more rigidly controlled marketing costs. Daily Chart
Nike posted 17% growth in sales in North America, its largest market. These gains are forecast to continue into the current quarter, since advance orders in North America for the period between December 2012 and April 2013 have increased 14%. Apparel sales notably jumped 19%, due to an increased demand for NFL sportswear. However, China posted a sales decrease of 11% to $577 million, as advance orders decreased 7%. Nike president Charles Denson stated that the company was revamping its apparel line, by offering "tighter fitting" apparel that would appeal more to Chinese customers. It is also using steeper discounts in the mainland to clear out older inventory. Sterne Agee analyst Sam Poser called Nike "a tale of two companies," stating, "Footwear is extremely strong, and apparel needs a lot of work." Crisis-mired Western Europe also posted a 2% decline, but Japan, Central Europe and the emerging markets posted gains that helped offset the drop. Total global orders for Nike's products, excluding currency impacts, increased by 7%, slightly missing the analysts' projected gain of 7.1%. CFO Don Blair reported that sales for the current quarter, which ends in February, will increase by a "low double-digit" percentage, which exceeds the analysts' expected gain of 4.7% to $6.12 billion. Currency fluctuations are expected to decrease its global sales growth by a single percentage point. Earlier this year, Nike sold soccer unit Umbro to Iconix Brand Group (ICON
) for $225 million, and is in the process of selling Cole Haan, its fashion brand, to Apax Partners for $570 million. Both brands had been unprofitable for several quarters. Gross margin narrowed for the eighth consecutive quarter, due to increased prices for raw materials and labor in Asia. Nike has raised prices and reduced production costs to offset these increased expenses, and management has stated that the margin contraction would reverse by the end of the fiscal year. Looking forward, Nike's Flyknit running shoes, Nike+ FuelBand movement-tracking wristbands and NFL apparel are expected to generate strong sales for the rest of the fiscal year. Shares of Nike trade at 17.4 times forward earnings with a 5-year PEG ratio of 2.4, suggesting that although the stock may be fundamentally cheap, it is unlikely to rally substantially in the near future. Nike's stock pays a quarterly dividend of 42 cents per share, a 1.61% yield at current prices. Other News About NKE Nike Sees Decline in Profits; Beats Estimates
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Published on Dec 27, 2012
By Leo Sun