Tuesday, June 28, 2011

Nike 4Q Review

Nike, Inc. reported 4Q results after the close on Monday and held an investor conference today. The company reported quarterly EPS of $1.24 versus street expectation of $1.16 and our modeled $1.09. 4Q2011 net revenues were $5.7bn, a 14% increase from last year and greater than the 9% analyst consensus. Gross margin, as expected, decreased 310 basis points due to increased inflation and sourcing costs. Full year revenue was $20.8 bn. 7.5mn shares were repurchased during the quarter for a total of $607mn.

Top-line performance was driven by 21% growth in the North American market, 16% in the Greater China region and 19% in Emerging Markets; partially offset by a 1% decline in Central/Eastern Europe and -26% in Japan. Inventory increased 33% on a year-over-year basis, which management commented was due to early summer shipments. Total futures orders, a key determinant of upcoming demand, were up 12% on a consolidated basis versus the expected 9%.

CEO Mark Parker commented during the investor presentation today that “Nike holds more than twice the number of invention patents than its closest top 5 competitors combined.” Last year, Parker stated that a company-wide goal was to report net revenues north of $27bn by FY2014. During today’s conference, he not only stated that they were well ahead of meeting that mark, but also revised the guidance up to $28 to $30bn.

Shares of the stock surged over 10% during the day. Notably, the higher than expected top-line growth was more than enough to offset the significant decline in gross margin. Additional pressure on gross margin continues to be the major risk going forward, as any major deceleration in sales would quickly flow through and affect the bottom-line. Nike is well positioned within the large emerging markets and retains several competitive advantages, solidifying its position as a growth story.


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