Nike (NYSE: NKE ) held the bottom line in its latest quarter, thanks to leaner operations and a lower share count. The stock is sprinting ahead as a result, but in the near term, the footwear and apparel leader might at best see business tick up at a power-walk pace.
Revenue came in at $4.8 billion, down 12% year over year, or 7% on a constant-currency basis. The results also marked a wider sales decline from the previous quarter. Meanwhile, futures orders -- Nike's program allowing retailers to place orders up to six months ahead of delivery -- indicated a less skittish marketplace. However, orders were still down year over year.
Weak sales are no surprise, given shaky consumer confidence and a tough comparison against last year's lead-up to the Olympic Games in Beijing. Yet among footwear and active-lifestyle companies, Nike's anemic top-line performance looks pretty good. It beat out the most recently reported currency-neutral results of adidas Group and VF (NYSE: VFC ) , and rocked the shoes off the overall performance of Volcom (Nasdaq: VLCM ) . There was no touching Under Armour (NYSE: UA ) , however, where second-quarter revenue climbed 5.1%. Lululemon athletica (Nasdaq: LULU ) was another outlier: Second-quarter same-store sales declined a mere 2% in constant dollars.
Solid profitability was probably the highlight for Nike. Previous job cuts, more conservative inventory management, and subdued marketing activity versus last year's push for the Olympics and the European Championships all helped keep net income flat at $513 million. A lower share count then transformed "flat" into a 1% rise on an earnings-per-share basis. On the other hand (or foot), gross margin contracted, as the company lowered prices to move product.
Nike's future contains reasons for cautious optimism. For one, market researcher SportScanInfo reports that Nike gained market share in U.S. footwear, as brands including adidas, Reebok, and New Balance shrank. Also, management reports that average selling prices are firming in most markets, while emerging-market futures orders are up 10%.
As for the outlook, management stuck to its forecast of a slow and gradual improvement for the broad economy, otherwise known as the company-branded "swoosh-shaped recovery." Even so, management emphasized that "we're cautious and playing our role in this industry in a prudent way." In currency-neutral terms, Nike expects full-year revenue and gross margin to fall.
In classic form, a Wall Street upgrade -- in this case, from Goldman Sachs (NYSE: GS ) -- hit the wires just as shares broke a year-to-date high. Last week, I suggested that Nike shares in the low $50s looked like an attractive entry point, based on historical P/E levels. I'm sticking to my guns even as the stock soars.
Of course, on a multiyear basis, there's nothing wrong with buying now. But if the swoosh recovery begins to flatline, shares at these prices don’t buy much downside cushion, which could leave investors with serious aches and pains.
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