Our long term recommendation on leading sports gear retailer,
), has been raised to Neutral on the back of better-than-expected
first-quarter 2013 results. However, poor margins, sluggish
discretionary spending and intense competition remain causes of
concern, keeping us on the sidelines.
Engaged in designing, developing and marketing of footwear,
apparel, and equipment and accessories for men, women and
children worldwide, Nike is the industry leader in the U.S.
footwear and athletic apparel industry. The company's strong
portfolio of globally recognized brands, Nike, Converse, Chuck
Taylor, Hurley, All Star, One Star, Star Chevron, and Jack
Purcell along with an incessant focus on innovation has helped
further strengthen its leadership position. These attributes also
provide Nike a competitive edge over its peers like
Brown Shoe Co. Inc.
First-quarter 2013 proved to be an encouraging one for Nike as it
posted stronger-than-expected earnings backed by a solid top-line
growth. The company's earnings of $1.27 per share outdid the
Zacks Consensus Estimate of $1.12. Total revenue grew 10% driven
by superior demand for Nike brand. The company witnessed strength
across all key categories and geographies, except Japan.
Moreover, the company's future orders, due for delivery from
September 2012 through January 2013, improved 6% from the
year-ago comparable period, indicating potential for further
growth in the company's top line.
Further, we remain impressed by the company's relentless emphasis
on expanding its global footprint and global market share. In one
such effort, the company remains rigorously focused on
capitalizing on the growth opportunities presented by the
emerging markets, especially China.
Another major tool used by Nike to broaden its boundaries is the
development of direct-to-consumer business model. Put together,
these strategies not only facilitate growth of its market share
but also strongly position the company among competitors.
Further, the company is in the process of doing away with its
underperforming brands, Cole Haan and Umbro, to help haul up its
Nike also boasts of a strong balance sheet that offers it the
financial flexibility to drive future growth. The company ended
first-quarter 2013 with cash and cash equivalents of $2,165
million and a total debt of $235 million, reflecting
debt-to-capitalization ratio of 2.3%. Further, the company
remains committed towards enhancing shareholders return as
evident from its new 4-year, $8 billion share repurchase program.
The company recently completed its 4-year $5.0 billion share
repurchase program approved in September 2008.
On the flip side, the dark shadow of the challenging
macroeconomic conditions continues to impact consumers by
curtailing their purchasing power. This may ultimately weigh on
Nike's growth and profitability as the general input costs, fuel
and energy costs, unemployment levels, and high household debt
levels continue to surge.
Further, the company remains exposed to political, social and
economic risks associated with its operations in other countries.
The company's footwear products are entirely manufactured outside
the U.S., in developing countries such as China, Vietnam,
Indonesia and Thailand. The company's operations across
international borders also attract the risk of currency
Despite a little elevation in our long-term view on the stock,
the company's prospects remain solid in the short term given its
robust quarterly performance and a ramp up in future orders.
Thus, the company maintains a Zacks #2 Rank, indicating a short
term 'Buy' rating.
(ADDYY): ETF Research Reports
BROWN SHOE CO (BWS): Free Stock Analysis
NIKE INC-B (NKE): Free Stock Analysis Report
To read this article on Zacks.com click here.