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Footwear and apparel behemoth and Dow-30 member NIKE (NKE - Free Nike Stock Report) reported fiscal third-quarter (ended February 28, 2014) share net of $0.76, compared to $0.73 a year earlier and our estimate of $0.74. The top line rose 12.7% year over year, and beat our estimate by 2.2%.

Despite higher product input costs, unfavorable exchange rates, and increased discounts to clear excess inventory in some markets, the gross margin expanded by 30 basis points, thanks to higher average selling prices and growth in the more profitable direct-to-consumer businesses. However, those gains were partially offset, as expected, by an 18% increase in marketing expenses and a 15% hike in overhead due to infrastructure investments and to support retail operations and expansion. Other expenses rose to $45 million from $17 million a year ago, mostly as the result of foreign exchange losses.

We're lifting our May-period share-earnings estimate by $0.03, to $0.84, representing an 11% jump over the tally in the fourth quarter of fiscal 2013, and bringing our full-year estimate to $3.05, compared to the $2.69 earned last year. We think the bitter cold winter will open up to an active spring athletic season, and NIKE should benefit from the upcoming World Cup. Also, future orders (on a currency-neutral basis) were up 14%, year to year, at the end of February, accelerating slightly from a 13% gain at the end of November. Meanwhile inventories increased a smaller 12%.

Despite the good news, NKE stock fell moderately on the report. This may have been due to management's comments that foreign currency headwinds will likely weigh on near-term earnings. Additionally, the stock was trading near a 52-week high ahead of the earnings release, so profit taking may have played a role in the selloff. In our last full-page report date January 31st, we urged investors to avoid Nike stock due to its steep valuation, a move we still view as prudent, despite this most recent price retracement.

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.