Footwear and apparel giant NIKE, Inc. (NKE - Free NIKE Stock Report) concluded the first half of fiscal 2017 (year ends May 31, 2017) on a strong note. Specifically, the company earned $0.50 a share in the November quarter, which easily exceeded both our expectation of $0.44 and the year-earlier tally of $0.45. The retailer also surprised at the top line, with revenues totaling roughly $8.2 billion, compared to our $8.07 billion estimate. On a currency neutral basis, revenues would have increased 8%, year over year, with noteworthy gains recorded in North America, Western Europe, and the Greater China region. The news was not all rosy, though, as future orders grew just 2%, in constant currency, hurt by a 4% decline in North America.
On the bottom line, the company benefited from effective administrative cost management. In addition, roughly $900 million in stock buybacks aided per-share comparisons. These actions helped to mitigate a contraction in the gross margin, which narrowed by 140 basis points, to 44.2%, in the latest quarter. Foreign currency exchange headwinds and higher operating costs were to blame for the gross margin erosion.
Looking ahead, NIKE is now anticipating a high-single-digit advance at the top line for fiscal 2017. And, even though we expect the margin contraction to continue in the near term, we are raising our full-fiscal year earnings estimate for NIKE by a nickel, to $2.45 per share. NIKE stock, which had been the weakest performer in the Dow 30 thus far in 2016, is little changed on the November-quarter showing. Despite the difficult performance this year, we still think NIKE shares would make an excellent choice for conservative portfolios with a longer-term view. Appreciation potential to 2019-2021 is worthwhile. The stock has a below-the-market Beta and scores well for Price Stability, Earnings Predictability, and Growth Persistence. Also note the company's top-notch Financial Strength rating of A++.
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. – Robert J. Scrudato
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
