Footwear apparel titan NIKE (NKE Free NIKE Stock Report) has reported results for its fiscal second quarter ended November 30th. (Years end May 31st). The showing beat expectations in terms of both revenues and earnings, but North America sales levels were underwhelming due to fierce price competition. Investors have been focused on improvement in this area, as the stock has risen from the $50 mark to the mid-$60s in the past three months. Now, with the North American figure leaving much to be desired in the November interim, the stock came under some pressure in the trading hours following this release.

Revenues for the three-month window clocked in at $8.55 billion, handsomely higher than both the $8.18 billion in the year-earlier period, and the $8.40 billion we had anticipated. Footwear sales rose 4% year over year, while apparel receipts increased 9%. Equipment sales dipped by 6%, but this is more reflective of NIKE exiting markets such as golf, rather than an underlying business issue. North American revenues, a vital metric that the investment community has been keeping an eye on fell 5%, to $3.49 billion, versus the same period in fiscal 2017. Competition here is still intense, though management appears to be weathering the storm slightly better than in recent memory. Conversely, the combined top line of the Europe, Middle East, and Africa divisions was 19% higher, or $2.13 billion, China receipts jumped 16%, and sales at the Asia Pacific and Latin America zone was 6% greater than last fiscal year's like period. Management cited direct-to-consumer efforts for much of the improvement and think its innovative product mix will lead the way to further growth, while jumpstarting momentum on the domestic front. Breaking it down further, revenues from the NIKE brand were up 4% and Converse sales were down 4%.

From an earnings perspective, the fiscal second quarter share net registered $0.46 off of net income of $767 million. This was higher than both our and Wall Street's $0.40 call, but a drop from the $0.50 put up in the previous fiscal year's November quarter on net income of $842 million. NIKE cited a decline in gross margin and a higher selling and administrative expense as reasons for the year-over-year decline. Funds are certainly being poured into boosting up its online presence, with direct-to-consumer being a primary initiative, as well as the deal that was recently inked with Amazon.com to get some of the company's goods on to that website.

For the balance of fiscal 2018, we are lifting our expectations to reflect the second-quarter beat and the improvement we envision as the year rolls on. Our top-line call is now more than $500 million higher, at $36.12 billion, and our EPS estimate is being lifted by a dime, to $2.50. This figure is still only in line with the earnings amount registered for fiscal 2017, but we believe further upside exists if the North American market can snap back to its former prowess. Admittedly, this is no easy feat, but NIKE has shown a resilience in the past, and even with competition heating up, especially from Adidas, we would not count out the swoosh any time soon.

So the question is “does NIKE merit investment consideration?”. To this inquiry, we would say yes, with a caveat. The near term picture is clouded, and therefore this shoe retailer is not a great fit for most accounts. For the stretch to 2020-2022, however, we like the total return potential inherent in this blue chip. A solid mix of appreciation potential and income should make this a solid selection for patient investors that believe the NIKE's number-one position in the athletic footwear market is here to stay.

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. Subsidiary brands include Converse casual sneakers and Hurley lifestyle apparel and accessories.

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