Nike (NKE) Regains its Footing with a Strong Third Quarter

Shares of footwear and athletic apparel retailer Nike (NKE) rallied last week, after the company reported strong third quarter earnings that exceeded analyst estimates. For the quarter ending on February 28, the Beaverton, Oregon-based company earned 73 cents per share, or $662 million, a 16% improvement from the 61 cents per share, or $569 million, it earned in the prior year quarter. Analysts have expected the company to earn 67 cents per share.

Revenue surged 9.4% to $6.19 billion, slightly missing the $6.23 billion analysts were expecting, but it didn't matter much - shares rallied 8% last Thursday after the company reported its third quarter results. Daily Chart
Nike's robust results alleviated investor concerns that slowing growth in Asia would derail the company's global growth prospects. As expected, revenue in China slid 9% to $635 million, while sales in Japan dropped 13% to 175 million. However, orders for Nike products in the current quarter rose 3% - a complete surprise to analysts, who had projected a decline of 4.3%. North America remained the company's strongest segment, reporting 18% sales growth to $2.5 billion. Debt-stricken Western Europe managed to post 8% sales growth to $1.0 billion, while Central & Eastern Europe - considered high growth markets - gained 16% to $266 million. Revenue from emerging markets also rose 6% to $839 million. Future orders in North America also rose 11%, while total worldwide futures orders for footwear and apparel rose 6% to $9.9 billion. Nike's e-commerce business also rose 33% during the quarter. In addition, the company recently started a three-month program to create products and services that inspire athletes using Nike technology. Recent technological enhancements to its footwear line include Flyknit - which adapts to moving feet, and Hyperwarm & Hypercool apparel, which regulate heat and cooling in harsh weather conditions. During the third quarter, Nike marked down its older products to clear its inventory, in order to make way for new products, which it believes can revive growth. It faces a steep challenge in clearing out products in China, where inventory hangover remains as far back as the 2008 Beijing Olympics. Labor cost inflation is also expected to remain a major challenge in China. Despite these markdowns, Nike's gross margin expanded 30 basis points from 43.9% to 44.2% during the quarter - the first time gross margin has improved in two years. This improvement helped offset rising labor and material costs. Looking forward, Nike expects revenue to grow a high single-digits, while EPS is expected to rise by the mid-teens, in line with Wall Street estimates. During the quarter, Nike bought back 4.9 million shares. Out of its $8 billion previously authorized, only $548 million has been spent. Shares of Nike currently trade at 19.58 times forward earnings, with a 5-year PEG ratio of 2.01. The stock pays a quarterly dividend of 21 cents per share - a 1.41% yield at current prices. Other News About NKE Nike Shows Athletic Apparel Marketing Growth Mode Nike's strong earnings lift the athletic apparel sector. Nike Shares Pop 8% After Earnings Beat Nike rallies strongly on robust earnings. Other Stocks in the News The Odds Are Not In This Company's Favor Scholastic plunges on lower sales of The Hunger Games. Is Ulta Salon a Bullish Beauty or a Bearish Beast? Can this beauty superstore keep growing in 2013? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Mar 28, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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