Nike's Earnings Up - Analyst Blog

Nike Inc. (NKE) posted strong fiscal 2011 first-quarter earnings of $1.14 per share, which reflects a growth of 10% from the year-ago earnings of $1.04. Earnings for the quarter also surpassed the Zacks Consensus Estimate of $1.01 per share. Healthy top-line growth coupled with higher gross margin and effective inventory management were the key highlights of the quarter.

Quarterly Details

Despite macroeconomic headwinds, Nike's total revenue grew 8% to $5,175 million from $4,799 million in the prior-year quarter. 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 fell short of the Zacks Consensus Estimate of $5,230 million.

During the quarter, Nike witnessed revenue growth across all geographic regions, except Japan and Western Europe. In Japan and Western Europe, revenue plunged 12% and 4%, respectively. Revenue growth was primarily led by emerging markets (namely, Brazil and India), which rose 30% year over year, followed by growth in China, Central and Eastern Europe, and North America of 11%, 3%, and 8%, respectively.

Nike's quarterly gross profit grew 10% year over year to $2,434 million, while gross margin expanded 80 basis points to 47%. The solid growth was due primarily to better product margins, favorable profitability from Direct to Consumer operations and profitable close-out sales. Global inventories fell 3% year over year to $2,210 million, mainly due to prudent inventory management policies and efforts to align merchandise mix with sales trends.

Nike ended the quarter with cash and cash equivalents of $2,010 million compared with a cash balance of $2,261 million in the year-ago period. During the quarter, the company repurchased 7.3 million shares for about $517 million as part of its four-year $5 billion program approved in September 2008.

Future Orders

Nike reported a 10% year-over-year increase in future orders scheduled for delivery from September 2010 through January 2011, reaching $7.1 billion. Future orders measure, customer orders scheduled for delivery in the coming season and are a widely used metric to gauge the performance of retailers.

Guidance

Moving forward, the company expects revenue to increase by a high single-digit rate in fiscal 2011 and by a low double-digit rate in the second quarter of the same fiscal, both excluding currency impacts.

Nike's shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Our long-term recommendation for the stock remains Neutral.

Headquartered near Beaverton, Oregon, Nike is the world's leading supplier of athletic shoes and apparel, and a major manufacturer of sports equipment.