Still on the Field

Nitesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Nike (NYSE: NKE) designs, develops, and markets footwear, apparel and equipment. It posted its second quarter results in which it disclosed revenue of $6.00, slightly ahead of analysts' predictions. Recently it is on a mission to improve its profitability and as a Part of that plan it decided to sell money-losing Cole Haan, a fashion brand with its own chain of stores, and the soccer unit Umbro. Cole Haan is in the process of being sold to Apax Partners for $570 million and Iconix Brand Group (NASDAQ: ICON) has bought Umbro for $225 million.

Look on Numerical Value

Nike ended the quarter with $3.5 billion in cash and only $400 million in debt. Its Revenue rose by 7% to $5.96 billion compared from $5.55 billion as over last year. Nike reported adjusted net income of $1.14 per share as against the estimate of $1 per share. EPS rose tremendously by 10.7% while revenue climbed by 4.7% from the same period over last year. Its revenue has grown during each of the past four quarters on a year-over-year basis and reported net income of $384 million during the end of second quarter. Sales in China were down by 11 % and down by 2% in Western Europe still the result of Nike is beyond expectations.

Innovations

Nike has been able to sustain demand in a market through its continuous R&D and innovations and hence the introductions like its Flyknit, FuelBand technologies, and unveiling of new National Football League jerseys. Further it also credited digital moves such as its Nike plus sensor embedded in shoes and now on wrists through FuelBand that allows runners and other athletes to track online their workout progress and engage with others. The company said the Nike plus universe has grown to a community of 10 million since getting its start in 2006.  The latest retro Air Jordan shoe hits the stores sparked some unruly crowds and is expected to yield $50 million.

Future Prospects

Despite weakened sales in China, other parts of the world are seeing huge revenue gains for Nike. The emerging markets segment hits $1 billion for the first time in a quarter and continues to grow at double digit pace in the days to come. In the second quarter, emerging market revenue grew by 18%, marking the thirteenth consecutive quarter of double digit growth. It is expected that Nike will post earnings per share of $5.98 for fiscal 2014. Orders for Nike-branded shoes and clothing scheduled for delivery from December 2012 through April 2013, known as futures orders, were up by 14% in North America which will enable it to earn handsome amount of profit.

Competitive Edge

Adidas (NASDAQOTH: ADDYY) is a large player in this industry, and though the company has a well to do brands across the globe, its earnings and revenues are on a lower hand as compared with Nike or Armour. Under Armour (NYSE: UA) is a tough competitor as it has beaten EPS estimates since last five quarters. As far as company’s revenues are considered it has also climbed the ladder at a furious pace over last five quarters.

Nike's valuation compared with its peers reflects its status as the market leader and has a leading innovator in the space. Further Nike has higher P/E ratio and EV/EBITDA ratio compared with Adidas. The reason as to why Nike has an upper hand over Under Armour is limited business footprint of latter as compared over former.

Final Verdict

The strong Q2 earnings have propelled the stock to a soaring height. Nike's innovation should help drive better returns for Nike investors in 2013. Nike completed a $5 billion share repurchase in the first six months of this fiscal year. The company now has laid out a new $8 billion share repurchase over the next four years. Nike also recently raised its dividend pay-out ratio to 17%. So knotting your portfolio for long run with the lace of Nike is a fruitful decision.


Niteshag has no positions in the stocks mentioned above. The Motley Fool owns shares of Nike and Under Armour. Motley Fool newsletter services recommend Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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