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The Dow-30's newest component, athletic wear giant NIKE (NKE Free NIKE Stock Report), has reported fiscal fourth-quarter (ended May 31st) share earnings from continuing operations of $0.78, compared with our estimate of $0.79 and the $0.76 logged in the year-earlier period. Sales, however, advanced a bit more strongly than expected, up 10.9% as reported and 13.0% on a currency-neutral basis. The stock moved modestly higher on the news.

Excellent gross margin expansion, despite unfavorable currency exchange rates and higher labor costs, was more than offset by an increase in the expense ratio. Movements in the exchange rates, as well as currency hedging losses below the operating income line, subtracted $0.03 a share from earnings on a comparative basis. The average share count was down 2.0%, but that was partially offset by a higher tax rate (due to a one-time benefit in last year's May period) and an increase in interest expenses. All in all, the fact that revenues accelerated at a faster pace than profits is not a reason for concern.

Impressive revenue growth was the result of higher unit volumes, increased average selling prices, and an expanding direct-to-consumer component. The World Cup soccer tournament appears to have provided a major boost to sales. Pricing was supported by innovative new products and an effort to push premium footwear. These campaigns will continue, as will new store and e-commerce expansion. Tellingly, recovering economic conditions in Western Europe can't fully explain the 18% sales gain in the region. Worldwide future orders were up 12%, year to year, at the end of May.

The May-period gross margin widened by a hefty 170 basis points, driven by new products, positive pricing, and increased company owned-retail stores. NIKE is aiming for a 75-basis-point improvement in the gross margin in fiscal 2015.

Marketing expenses increased by 36%, year to year, in the quarter. There was a lot of advertising and promotions surrounding the World Cup especially. So while it’s difficult to estimate profits from the games in the quarter, we think they will be nicely positive in fiscal 2015. Overhead expenses were up 13% to support new store, distribution infrastructure, and digital efforts. We expect the expense ratio to remain elevated in the August period, though it should be closer to fiscal 2014's level for the full year.

We're looking for sales to be up at a high-single-digit rate this year, with the largest gain in the first quarter, thanks to the World Cup and easier comparisons in Latin America and China. As for the bottom line, currency exchange rates and the timing of share repurchases are the great unknowns. We've left our full-year share-net projection unchanged at $3.40, but raised our August-period estimate by $0.04, to $0.89.

About The Company:Nike, Inc. designs, develops, and markets footwear, apparel, equipment, accessories, and services. It sells products to retail accounts, through NIKE-owned retail stores and the Internet, and through a mix of independent distributors and licensees in approximately 190 countries. It operates over 300 domestic and roughly 450 locations (including factory stores). It has about 48,000 employees.

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.