) - a global leader in sports equipment and apparel - came up
with its second-quarter fiscal 2013 earnings of $1.14 per share,
which surpassed the Zacks Consensus Estimate of $1.00. Moreover,
the quarterly earnings climbed 11% year over year, resulting from
increased revenues, leveraged selling, general &
administrative (SG&A) expenses and lower share count,
partially offset by a slightly weaker gross margin and higher tax
Nike's total revenue grew 7% to $5.955 billion driven by
superior demand for the Nike brand. Adjusting for currency
effect, the company's revenue grew 11%. However, revenue for the
quarter fell short of the Zacks Consensus Estimate of $6.019
On currency neutral basis, revenue for Nike brands grew 10%,
while other businesses rose 6%. During the quarter, the company
witnessed strength across all the key categories, product types
and geographies, except Greater China.
Quarter in Detail
Nike's quarterly gross profit grew 6% from the year-ago
quarter to $2.530 billion, while gross margin contracted 30 basis
points to 42.5%. The margin contraction mainly resulted from
higher labor expenses and adverse foreign exchange rates,
partially offset by benefits of pricing actions and lower
material costs. Another factor that pulled down the gross margin
was NIKE Brand switching to a mix focused on lower-margin
Selling and administrative expenses increased 6% to $1.836
billion, including a rise of 10% in operating overhead expense.
Overhead expenses rose on the back of increased investments in
the wholesale business and higher Direct to Consumer costs due to
opening of new stores.
Operating income for the quarter increased 12.66% year over
year to $712 million, while operating margin expanded 56 basis
points to 11.96%. The year-over-year expansion in margins was
primarily due to increased revenue and leveraged SG&A
expenses, partially offset by lower gross margin.
Global inventories increased 9% year over year to $3.318
billion. The growth was at par with the company's strategy of
supporting future demand for its products. Nike ended the quarter
with cash and cash equivalents of $2.291 billion compared with a
cash balance of $1.929 billion as of November 30, 2011.
During the quarter, the company repurchased 4.0 million shares
for about $384 million and completed its $5.0 billion share
repurchase program approved in September 2008. Under the recently
completed share repurchase program, Nike repurchased
approximately 59.4 million shares at an average price of
Further, of the 4.0 million shares repurchased during the
quarter, 3.1 million shares were bought back under the $8.0
billion share repurchase program approved in September 2012.
Nike is the industry leader in the U.S. footwear and athletic
apparel industry. In an attempt to expand its global reach and
market share, Nike is aggressively expanding its operations in
the emerging markets while focusing on direct-to-consumer
business and other brands, which augur well for its future
operating performance. In fiscal year 2012, Nike exhibited
significant strength by innovative products and services that
helped boost its top line. Moreover, the company's nearly
debt-free balance sheet offers financial flexibility to drive
Currently, Nike maintains a Zacks #2 Rank, which translates
into a short-term Buy rating.
However, in the long run, we prefer to remain on the sidelines
given the sluggish discretionary spending, ongoing European
crisis and slowdown in China.
Moreover, Nike faces intense competition in both domestic and
international markets from local as well as established players,
such as Adidas AG (including Reebok) and
Brown Shoe Company Inc.
). These companies are primarily in athletic wear and intend to
grab market share in active wear or lifestyle consumer
Therefore, we retain our long-term 'Neutral' recommendation on
BROWN SHOE CO (BWS): Free Stock Analysis
NIKE INC-B (NKE): Free Stock Analysis Report
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