On Thursday, March 21, global athletic apparel retailer NIKE, Inc. (NYSE:NKE) released its fiscal third-quarter earnings results after the closing bell. On Friday, the stock subsequently soared as investors reacted to the report, with shares closing up around 11%, just below a new all-time high. Nike has now climbed better than 15% in 2013, and around 11% over the last year.
The big move in the shares on Friday suggests that NIKE, Inc. (NYSE:NKE) may be setting up for a powerful breakout in 2013. This is a preeminent brand company with a terrific management team and a track record of creating value for shareholders. In the wake of the company’s most recent quarter, it’s time to buy Nike.
Overall, the report was very strong, although net sales were slightly below Wall Street estimates. Possibly the most intriguing part of the report was Nike’s growth by region. The company reported significant sales growth in North America while Asia was a weak spot.
Nike Reports Significant Momentum in North America
North American sales were up 18 percent to $2.5 billion whereas sales in China fell 9% to $635 million. Although at first glance, a drop in Chinese sales would appear problematic, investors poured money into the stock anyway. Why? Before answering that question, let’s take a look at the sales figures from other regions first.
Western Europe looked very good, recording a 8% sales increase to $1.0 billion and Central and Eastern European revenue was up 16% to $266 million. Emerging markets revenue was up 6% to $839 million, while Japanese sales fell 13% to $175 million.
The only real sore spots in regional sales trends were in Asia, while the company’s domestic business exploded in the quarter. Going forward, this is a very bullish set-up. First, the Japanese figures should be discounted, as sales in the country only accounted for less than 3% of total quarterly revenue.
China Sales Drop; No Need to Panic
Second, the slowdown in China won’t last — I’m willing to bet NIKE, Inc. (NYSE:NKE) will get this huge growth market right — and with North American sales surging, the future looks very bright for the Beaverton, Ore.-based apparel company.
Analysts were curious about the drop in China sales, which management had been warning about after torrid growth in that market in recent years. The company said that the setback was due to excess inventory and figuring out the preferences of Chinese consumers. Although it might take a quarter or two to get the strategy back on track, over the long-haul, Nike is going to make a fortune in China.
“What we see in China,” Nike Brand president Charlie Denson said, “it’s still a very robust marketplace. It’s still somewhere we believe in long-term.” The most recent quarter is likely a blip on the radar in Nike’s China strategy; the company said that future orders were up 4% in the region. In North America, future orders were up 11%, while they were down 5% in Western Europe, where the company just reported a strong quarter.
Third-Quarter Earnings Per Share Well Above Estimates
Overall, these numbers were very solid. Furthermore, NIKE, Inc. (NYSE:NKE) made a boatload of money in Q3, easily beating earnings per share estimates even though total revenue was a little light. The company reported income from continuing operations of $662 million or $0.73 per share, versus $560 million or $0.61 per share, last year. This compared to Wall Street consensus of $0.67 — a nice beat.
Revenue was up 9% to $6.19 billion from $5.66 billion in last year’s third-quarter. This came in just below analysts’ expectations of $6.23 billion, primarily due to the weakness in China.
What Other Companies Benefit?
Shares of apparel competitor Under Armour Inc (NYSE:UA) jumped on Friday in the wake of Nike’s results, and has held itsgains in recent days. Under Armour is a fast growing, cutting-edge apparel retailer which has seen its stock price surge in recent years. The trends at Nike bode well for Under Armour and other companies engaged in the footwear and apparel market, including Finish Line Inc (NASDAQ:FINL). Under Armour is set to report its quarterly earnings results on April 18, and Finish Line will report its financial results on March 28.
These companies could report earnings ahead of Wall Street estimates, based on strengthening domestic sales trends at Nike. Whereas Under Armour has been a leading growth stock over the last five years, Finish Line has reported stagnant sales, but rising income and margins. Nevertheless, both stocks have been huge winners during this time period, with Under Armour climbing better than 170%, and Finish Line rising more than 335%.
Blue-Chip Brand, Management Team and Track Record
Investors looking for more reasons to buy NIKE, Inc. (NYSE:NKE)‘s stock should consider the company’s brand, management team, and track record. Nike is not like other companies – except for a very select few. Nike is cool, it has cache. Consumers love the brand and they are loyal to the brand.
LeBron wears Nike. Kobe wears Nike. Tiger wears Nike. Christiano Ronaldo wears Nike. The list goes on and on — and it is worth a lot of money in an industry where image is everything. This company’s brand alone is worth a fortune, and it’s going to get more and more valuable as the company continues to expand its international footprint.
This is also a company with a stable management team that has made a lot of money for investors. This company has only had three CEOs in its history, and one of them only had a tenure of two years. For the most part, NIKE, Inc. (NYSE:NKE) has been run by Phil Knight, the company’s founder, and Mark Parker, its current CEO.
Parker, who started with Nike in 1979, has been in the top job since 2006, while Knight remains the Chairman of the Board. As an investor, this kind of stability is almost always a good thing — especially when the stock continues to go up and up. Over the last 5 years, NIKE, Inc. (NYSE:NKE) has climbed 77%, and on the 10-year chart, the stock is up 347%. What is not to like?
Time to Buy?
Overall, Nike is one of the best bets in the stock market for long-term investors. Furthermore, the company’s third-quarter results might be the catalyst that triggers a powerful breakout in 2013. Given the company’s operating momentum, preeminent brand, stable and proven management team, and track record of creating value for shareholders, this is a name that investors might need to scoop up now.
The article It’s Time to Buy Nike! originally appeared on Fool.com and is written by Ryan Glosier.
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