Nike (NKE, Financial) had a rough time in 2016, as the stock declined approximately 20%. Moreover, Nike also received the title of worst performing Dow stock of 2016. The company faced several issues that negatively impacted the stock, such as the emergence of foremost rival Under Armour (UA, Financial) and the resurgence of Adidas (ADDYY, Financial).
Most importantly, the athletic footwear and apparel giant reported strong second quarter results. In the second quarter, the company reported EPS of 50 cents, surpassing the consensus estimates by 7 cents. Revenue came in at $8.18 billion, beating the analyst estimates by $90 million. That figure also represents a surge of 6.4% year over year.
Regardless of the substantial investments Nike made in infrastructure, the company ended the quarter with approximately $5.9 billion in cash on its balance sheet, which represents a drop of $173 million compared to the year-ago period.
In spite of sturdy growth in overall sales, the company’s gross margin dropped 140 basis points to 44.2%, which forced stockholders to doubt its ability to generate the most profit possible from its massive investment in its brand name and reputation. The apparel giant’s revenue is estimated to reach $35 billion this year.
According to statista.com, Nike’s worldwide market share in athletic footwear is projected to grow from 22.8% in 2016 to 27.2% in 2020. Though the company has been losing market share to its rivals, it still governs approximately 50% of the athletic footwear market in the U.S.
It is essential for the company to grow its top-line at a CAGR of nearly 11.5% to accomplish its $50 billion revenue target by 2020. To achieve the target, the apparel giant needs to reclaim its market share by bringing more innovation in its products.
Nike should also aggressively focus on direct to consumer sales, as future orders have started to decline.
When it comes to dividends, Nike has increased its dividend every year for the last 15 years. The company’s most recent dividend surge was a 12.5% increase to 18 cents per share. That figure represents a healthy yearly dividend yield of 1.35%.
Summing up
Over the past few quarters, Nike has been struggling due to more discounting to lessen inventory, as well as greater input costs that adversely impacted the gross margin. It is likely that the apparel giant will endure gross margin and sales pressure due to the escalating competition from Under Armour and Adidas.
Despite all these issues, Nike appears to be in a great position heading into 2017. The company is primarily placing its emphasis on e-commerce sales, which surged over 50% in the starting half of FY 2017. Moreover, the company has been raising its dividend for the past 15 years, which looks quite impressive.
As a result, Nike is one of the good dividend stocks to own for long-term stockholders.
Disclosure: No position in the stocks mentioned in this article.
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