NIKE (NKE - Free NIKE Stock Report), a Dow-30 component that engages in the design, development, marketing, and sale of athletic footwear, apparel, accessories, equipment, and services, has reported fiscal 2020 first-quarter (ended August 31st) financials that surpassed expectations on both the top and bottom lines. The report included a jump in sales to China that the investment community certainly was pleased with. As a result, NKE stock rose more than 5% in afterhours trading and eclipsed the $90-a-share mark for the first time in its storied history.
Revenues for the three-month period increased 7% on a year-over-year basis, to $10.66 billion, which was comfortably ahead of our estimate at $10.44 billion. NIKE's North American sales, a vital statistic that Wall Street keeps a very close eye on, were up 4% versus the first period of fiscal 2019. In the recent past, a negative reading from this metric kicked off an elongated slump for these shares, but of late receipts here have been solid. Much of the attention from this report is going to the figures coming out of China. Excluding the impact of currency translation, sales in China rose 27%. That amount was bolstered by a 29% uptick in equipment revenues and a 28% increase in apparel. The footwear business, which accounts for the lion's share of China-based sales, also posted a 27% advance, totaling $1.2 billion.
From an earnings perspective, share net clocked in at $0.86, $0.15 higher than what both we and Wall Street were looking for, and well ahead of the $0.67 figure from the year-earlier period. Management highlighted the strong revenue gains and gross margin expansion as just a couple of the drivers behind the better-than-expected earnings figure. Gross margin for the quarter came in at 45.7%, a handsome incline from the same time last year when that figure was 44.2%. NIKE has been able to improve on already strong margins even at a time when it is pouring heavy money into its digital transformation and dealing with elevated competition from a handful of rivals. Add to this the increasingly volatile macroeconomic backdrop and geopolitical concerns, and this level of earnings growth looks even more impressive.
NIKE has addressed all the problems that investors complained about in recent years. Most notably, it has upped its game as far as specialization of footwear goes via its Web site. The millennial generation prefers having more input into what their sneakers look like in terms of colors and styles, and the company has accommodated their younger customers. Too, special releases have become more of an event like they were years ago. Execution of this manner certainly helps the Jordan brand gain steam. NIKE's roster of superstars is unparalleled in the sporting world and gives it a leg up on hard charging competition, particularly from Adidas, and specifically in areas like basketball. Adding up all these positive factors, we are raising our fiscal 2020 earnings call by a dime, and it now stands at $3.00 a share. Subscribers will recall that the fiscal 2019 tally equated to $2.49.
So are shares of the Swoosh worth an investment at this time? At the current price our answer is no. Those that are not already stakeholders here may be wise to wait for a pullback before getting involved with this blue chip. Trading at an all-time highs, appreciation potential three to five years hence is subpar, as is the yield of this high-quality stock. Finances remain rock solid, but the lofty valuation prompts us to suggest taking a pass on NIKE stock, for now.
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.
— Erik M. Manning
