Last night, Nike (
) reported stellar Q1 earnings, beating analyst estimates by a
whopping $0.08, per Thomson Reuters.
The delta versus analyst estimates came from a timing shift of
North American distribution center costs as well as a mix shift
towards premium products, which command higher pricing.
Margins also benefited from lower input costs and less
promotions while revenue momentum was attributed to growth in the
Direct To Consumer (DTC) segment.
Moreover, running remained a leading category, with 15
consecutive quarters of double digit growth and double digit
futures growth for Q1.
MT Newswires expects analysts to raise earnings and target
prices this morning, with upside potential to $110.
As a recap, total futures orders were up 8% (which is a bit
ahead of the street's 7.7%) with North America up 11% (versus
street 9-11%), China up 3% (versus street 0%), Europe up 12%
(versus street up 1-3%), and Emerging Markets up 1% (versus street
On the conference call management reiterated its outlook for its
core business performance, but slightly reduced its revenue and
earnings for the remainder of FY14 (due to increased currency
headwinds). That said, the company expects a healthy 50 bps of
gross margin expansion for both Q2 and FY14, respectively (which
On valuation, NKE is currently trading at 23x earnings, which is
low given the company's still high growth prospects in spite of its
dominance in athletic footwear. This is especially the case
considering Skechers USA (
) valuation, which trades at almost 30x earnings, Lululemon
) at 40x earnings, and Under Armour (
) at 50x earnings.
Upside case scenario - assuming mid-teens earnings growth and
multiple expansion (catalysts include expansion outside of the US,
particularly in China and Brazil) to 30x, which is on par with SKX,
on FY15 earnings $3.70 would imply upside potential to $110.
Downside case scenario - assuming a tougher consumer environment
coupled with macroeconomic softness would put pressure on gross
margins and slow earnings growth. At a base multiple of 20x on FY15
earnings $3.50 would equate to a downside target price of $70.
The stock is currently trading up 6% at $75 in the
NKE 74.84 +4.50 +6.40
SKX 30.34 0.00 0.00
LULU 72.25 0.00 0.00
UA 80.15 +1.04 +1.31
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