Nike Beats on Stronger Sales - Analyst Blog

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Nike Inc. ( NKE ) posted earnings of $1.00 per share for second-quarter 2012 that beat the Zacks Consensus Estimate of 97 cents and rose 6.4% from the year-ago earnings of 94 cents. Management hinted that strong top-line performance coupled with selling and administrative expense leverage and lower average share count gave a boost to the bottom-line.

Quarterly Details

Nike's total revenue grew 18% to $5,731 million from $4,842 million in the prior-year quarter, primarily driven by growth in all key categories of NIKE Brand, except Action Sports, and in geographic regions excluding Japan. The company continued to benefit from its strategy of consistently focusing on innovative products that provide a competitive edge over its rivals. Revenue for the quarter surpassed the Zacks Consensus Estimate of $5,627 million.

Nike's quarterly gross profit surged 12% from the year-ago quarter to $2,450 million, while gross margin contracted 260 basis points to 42.7%. The decline was primarily attributable to higher product costs, partially offset by favorable profitability from Direct to Consumer operations, positive pricing actions impact and benefits from cost reduction initiatives.

Selling and administrative expenses for the quarter grew 13% to $1,820 million from $1,611 million in the year-ago quarter. Earnings before taxes (EBT) for the quarter inched up 1% to $618 million from $609 million in the year-ago period. However, EBT margin contracted 180 basis points from the prior-year quarter to 10.8%.

Global inventories were up 35% year over year to $3,164 million, mainly driven by higher average unit product cost, growth in total units and changes in currency exchange rates. Nike ended the quarter with cash and cash equivalents of $1,929 million compared with cash balance of $1,768 million in the year-ago period.

During the quarter, the company repurchased 7.6 million shares for about $672 million as part of its 4-year, $5.0 billion program approved in September 2008.

Future Orders

Nike reported an increase of 13% in future orders to $8.9 billion from the prior-year quarter, which is scheduled for delivery from December 2011 through April 2012. Future orders measure customer orders, which are expected to be delivered in the coming season and are a widely used metric to gauge the retailer's performance.

Nike is the industry leader in the U.S. footwear and athletic apparel industry. Furthermore, a strong portfolio of globally recognized brands, such as Cole Haan, Converse, Chuck Taylor, Hurley and Umbro provide a competitive advantage to the company and bolsters its dominant position in the market.

However, Nike faces intense competition in both domestic and international markets from local as well as established players, such as Adidas AG (including Reebok), PVH Corporation ( PVH ) and Brown Shoe Company Inc. ( BWS ). These companies are primarily in athletic wear and intend to grab market share in active wear or lifestyle consumer products. Moreover, the athletic footwear and apparel industry is characterized by rapidly changing customer preferences and technology, which requires continuous innovation in order to stay ahead of trends and competitors.

Currently, Nike maintains a Zacks # 3 Rank, which translates into a short-term 'Hold' rating. Moreover, we retain a long-term 'Neutral' recommendation on the stock.

BROWN SHOE CO ( BWS ): Free Stock Analysis Report

NIKE INC-B ( NKE ): Free Stock Analysis Report

PVH CORP ( PVH ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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