Nike beats estimates

Will the athletic retailer beat year-over-year expectations?

By Benzinga Dec 20, 2011 7:25PM

By Scott Rubin, Benzinga Staff Writer


Global athletic apparel retailer Nike (NKE) continued strong operational momentum in its fiscal second quarter, reporting profit of $469 million, or $1 per share, up from $457 million, or 94 cents a share, in last year's second quarter.


The results beat Wall Street analyst estimates of 97 cents a share. The company cited strong consumer demand, expense leverage and a lower average share count in driving the strong results.


Net sales for the second quarter came in at $5.73 billion from $4.84 billion a year earlier. This also beat analysts' consensus estimates of $5.63 billion. Future orders at the Beaverton, Ore. company rose 13% year-over-year.


But despite the overall upbeat report, gross margins at Nike fell from 45.3% a year earlier to 42.7% in the most recent quarter. This is a metric that investors will want to continue to pay attention to going forward.


Still, investors were pleased with the results, sending Nike shares up 2.5% in after-hours trading to $95.95.


The Nike portfolio is "a powerful engine for growth," said CEO Mark Parker in a statement Tuesday. "Going forward we'll continue to use the unique power of our portfolio to drive growth, manage risk and connect with consumers."


Despite the beat, Nike's stock has done little over the course of the year, and it looks as though it will close 2011 nearly unchanged from the start of the year. Long-term shareholders of Nike may take solace in the fact that the company has managed to beat expectations, but may be disappointed by the lack of growth. However, all things considered, Nike's stock has been roughly in line with the broader performance of the market.


While investors may be concerned about declining margins, the company has once again underscored its solid growth profile and dominant position in the global athletic apparel market. In the last three months, Nike shares have risen 4.66% and are roughly $3 below all-time high prices.


The company's second-quarter results will likely do little to discourage investors going forward, but they also may not be enough to appreciably move shares higher in the near-term without a rally in the broader market.


ACTION ITEMS:

Bullish:
Traders who like Nike may consider the following trades:

  • Go long Nike. The stock is up only 1.5% in after hours trading. Should the company continue to deliver, investors could still find that the stock is at an attractive valuation.
  • Go long a Nike distributor, such as Foot Locker (FL). Better product could translate into a positive for the retailer.
Bearish:
Traders who believe that Nike's earnings are not indicative of the company's future performance may consider alternative positions:
  • Buy puts on Nike. If the stock pulls back, puts could be an attractive way to play the downside to the stock.
  • Take a position in another company in the footwear industry.
Neither Benzinga nor its staff offer investment advice, nor do they recommend that you buy, sell, or hold any security.

6Comments
Dec 21, 2011 5:26PM
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Good stuff, I like Benzinga's Trading Ideas!!!
Dec 21, 2011 5:44PM
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hm never traded NKE before, but now it seems cray to say no.
Dec 21, 2011 5:29PM
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Informative and nicely written. I'm long NKE so thanks for the update!
Dec 21, 2011 5:27PM
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I think Nike is a value trap. The stock has gone no where all year. If anyone is investing in Nike I don't know what they are thinking. I wouldn't buy their shoes if my life depended on it.
Dec 21, 2011 5:25PM
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Nike is a global growth story with a very high quality business and brand moat. At $44 billion in market cap, this company is only in the mid-innings of its maturation.
Dec 21, 2011 5:00PM
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To comment on going long for Nike distributors, check Dick's Sporting Goods (DKS)
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