Nike (NKE, Financial) reported strong second-quarter results with decent top- and bottom-line growth. It experienced an increase in revenues due to an increase in global consumer demand. There was an increase in diluted earnings per share. Revenues were driven by double-digit currency-neutral growth in Western Europe, Greater China and the emerging markets.
Not only does it have a powerful portfolio, it is all set to unlock its highest earning potential by leveraging this portfolio. The North American segment continues to be a strong region for the brand. During 2015, the women’s business witnessed a 15% increase in revenue. Tremendous opportunities lie in emerging markets and young athletes.
Strong second quarter
Revenues during the quarter for Nike increased by 6% and were $8.2 billion.
Revenues for the Nike brand were $7.7 billion during the quarter (an increase of 8% on a constant-currency basis).
Revenues for Converse were $416 million during the quarter (which marked an increase of 5% on a currency-neutral basis).
Gross margin contracted 140 basis points to 44.2%.
Selling and administrative expense was $2.5 billion in the quarter. Demand creation expense was $762 million.
Operating overhead expense decreased by 3% and was $1.7 billion during the quarter.
Other income, net was $18 million during the quarter.
The effective tax rate was 24.4% during the quarter (19.1% in the prior-year quarter).
Net income during the quarter increased by 7% and was $842 million.
Diluted earnings per share increased by 11% and were 50 cents during the quarter.
Inventories for Nike were $5.0 billion during the quarter (an increase of 9% from Nov. 30, 2015).
Cash and short-term investments were $5.9 billion during the quarter.
Share repurchases
During the second quarter, the company repurchased a total of 17.0 million shares for approximately $900 million. It repurchased 56.0 million shares for around $3.1 billion as of Nov. 30.
Dividend
The company declared a quarterly cash dividend of 18 cents per share payable on Jan. 3, 2017, to shareholders of record at the close of business Dec. 5.
Basketball business
The company may benefit from the basketball business in the year 2017. It already boasts of a number of superstar athletes who fuel this company to be a great player in the basketball market. The basketball segment boasts of LeBron 12 with Zoom Air technology, the Kobe X and the introduction of the Kyrie 1.
Strong attributes of the company
- Industry-leading innovation platforms.
- Highly anticipated signature basketball styles.
- Personalized retail experiences on the horizon.
- Robust pipeline of products.
Conclusion
Being the most dominant player in the athletic apparel and footwear industry, Nike has already carved a niche among brand-conscious consumers. It is focusing on robust innovation to stay ahead of its competitors. A rise in disposable levels of income and increase in fitness-conscious people is not going to die down anytime soon. Nike has plenty of opportunities in this fitness-driven market. It has well-placed strategies to drive profitable growth and strong cash flows.
Innovation plays a pivotal role for this brand. This can be seen from the number of products introduced throughout the year. It is working on digital platforms, advanced manufacturing, supply chain innovation and new partnerships to expend its reach. Nike has entered into a contract with the Football Association until 2030. This will enable Nike to provide apparel to all 24 English teams based at St. George’s Park. This deal will widen Nike’s reach. Long-term endorsement deals and superstars associated with this brand are growth drivers.
During the last 10 years, Nike has doubled revenue and nearly tripled earnings per share. In 2015, it announced a four-year, $12 billion share repurchase program. Nike is known for returning value to the shareholders, and this year marks the 15th consecutive year of dividend increase. This Oregon-based athletic apparel retailer is ready for near- and long-term growth opportunities. It is ready to deliver good results in the future.
Adding this company will reap shareholder returns.
Disclosure: I do not hold any position in the company.
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