Athletic footwear and apparel titan NIKE (NKE Free NIKE Stock Report) has released its fiscal fourth-quarter financials (year ended May 31st). The report was a mixed bag, as revenues sailed past expectations, while share net came up a bit short of forecasts. On a brighter note, it appears that the tariff situation with China will not have the sizable negative effect that many pundits feared. Due to this positive, the investment community likely is giving the company somewhat of a pass on the earnings miss. With that, NKE stock, a Dow-30 component, is mostly unchanged in intraday trading.

Sales for the three-month period came in at $10.18 billion, just ahead of our recently trimmed $10.15 billion call, and up nicely from the $9.79 billion posted in the final quarter of fiscal 2018. Revenues for the NIKE brand jumped 10% year over year, to $9.70 billion. Within the sales tally, there were a number of vital metrics that Wall Street looks at, beginning with North American sales. Here, total receipts, excluding fluctuations in currency rates, were up 8%, to $4.17 billion. Footwear sales in North America were 9% higher; apparel business climbed 6%; and equipment revenues rose 7%. These are strong readings on the home front, especially given the competitive environment the swoosh finds itself in. Another key area is China, which investors are keeping a watchful eye on as a trade war with that country has dominated the headlines of late. In China, sales jumped 22%, to $1.70 billion. One more vital figure, the direct-to-consumer division registered sales of $11.80 billion for the full fiscal year. This is an area NIKE has poured money into, in an effort to connect with younger customers. A 35% rise in online sales was the largest contributor here, while sales to wholesale consumers also put up a very respectable 10% advance.

From an earnings perspective, share net clocked in at $0.62, down from the $0.69 put up in the fourth quarter of fiscal 2018, and a few pennies shy of both our and Wall Street's reduced consensus that had settled in at around $0.66 a few weeks ago. Management intimated that profit margins were dented in the period by investments in the direct-to-consumer channel. NIKE has had to sell more of its products via this avenue, as some major sporting goods retailers have gone out of business, most notably Sports Authority, and department stores have been struggling mightily. Separately, additional funding was poured into the supply chain to create new items and stock stores faster to give the swoosh a leg up on Adidas and Under Armour (UA). 

Looking ahead to fiscal 2020, management did not immediately provide guidance for the campaign, but we will be adjusting our earnings expectations down a bit, for now, to reflect the continuing margin pressure we foresee in the coming months, as the company spends more to stay ahead of the competition. The ongoing buildout of the direct-to-consumer platform will be expensive, as will the further push into women's categories. With that, we are trimming a nickel each quarter (totaling $0.20 a share) from our fiscal 2020 earnings estimate, which now sits at $2.85 a share. We continue to look for revenues to come in around the $42.30 billion mark.

Although the situation for NIKE looks solid, we would not be buyers of this stock at recent price points (north of $80 a share). At these heights, capital appreciation and total return potential are both subpar on a 3- to 5-year basis. It's clear that much of the good news is already baked into the quotation. Waiting for a better entry point seems like the most prudent move at this juncture.

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.