Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Catch This Stock if You Can

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Onward and upward! Or so it goes for shares of athletic-shoe and apparel maker Nike (NYSE: NKE  ) .

There's no doubt that the shoemaker's fiscal 2010 third-quarter results impressed. Following four consecutive quarters of declining sales, Nike posted revenue of $4.7 billion, good enough for a respectable 7% gain. That's better than the most recent sales performance of VF (NYSE: VFC  ) and Volcom (Nasdaq: VLCM  ) , both of which sell competing brands.

Emerging-market sales stole the show; revenue there vaulted to $509 million, scoring 43% year-over-year growth. The "Other Businesses" segment, which includes the Converse and Hurley International brands, posted a 13% sales gain.

Perhaps more importantly, wholesale orders for future delivery chalked up 9% year-over-year growth. This key expression of retailer confidence initially regained traction in the prior quarter. Coupled with recent results, it appears that retailers now firmly expect loyal Nike consumers to come off the bench and hit the mall.

Judging profit performance is a trickier game. On a reported basis, earnings per share of $1.01 soared more than 100%. But when we exclude a hefty non-cash impairment charge in the year-ago period (related to Nike's 2008 acquisition of Umbro), EPS growth dwindles to a meager 2%.

That may not seem right, given that gross margin widened by three percentage points (on higher revenue nonetheless), driven by such notables as improved product mix, lower material costs, and tighter inventory management. The problem is that additional factors intervened to the downside, including unfavorable shifts in overhead and marketing expense, a higher effective tax rate, and a larger share count.

That last fact is particularly notable, since Nike has been enthusiastically buying back shares -- 5.1 million of them in Q3, in fact. Dilutive stock options are presumably the culprit. I'm not trying to give Nike a hard time here -- management's worth it, in my view, and the share count remains below 2007 levels -- but it's a lesson for investors to read beyond the happy headlines.

As an alternative to high-flying and risky consumer-discretionary stocks, I first suggested that investors take a look at Nike back in September 2009. Since that time, the swoosh has well outperformed its consumer-discretionary peer group, including Polo Ralph Lauren (NYSE: RL  ) , Crocs (Nasdaq: CROX  ) , and even Coach (NYSE: COH  ) .

While stock performance doesn't always correlate with business results, I found Nike's following description of Q3 results particularly revealing:

It all points to one word -- Momentum. While others froze or retrenched over the past two years, we never stopped moving. We never stop designing better products …. And because we never stopped, it’s easier for us to gain speed and momentum.

Among the 30 or so stocks that I regularly cover, I have to say that Nike, along with Church & Dwight (NYSE: CHD  ) , tops the list for inspired and proactive management.

And given this quarter's showing, I'm less cautious on valuation than in the recent past. Management's not offering a fiscal 2011 forecast until May. But based on analyst expectations, the stock is currently trading at a forward price-to-earnings ratio of 17, below its five-year average of 18.

Investors who buy at today's prices might not win gold, but in the marathon, if not the sprint, I suspect they'll keep pace just fine. 

Don't fall behind on related Foolishness:

Scared of companies that issue too many options? Jim Royal thinks these execs are incentivized to fail.

Coach is a Motley Fool Stock Advisor recommendation. Volcom is a Motley Fool Hidden Gems pick. VF is an Income Investor recommendation. The Fool owns shares of Volcom. Try any of our Foolish newsletters, free for 30 days.

Fool contributor Mike Pienciak owns shares of Church & Dwight but holds no financial interest in any other company mentioned in this article. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 21, 2010, at 3:50 PM, Acmeman wrote:

    Thanks for the illuminating analysis. I wouldn't be so quick to dismis the increase in share count in spite of share buybacks. While management is as you said worthy, there's lots of insider selling and no buying. If we're going to be diluted to compensate management, I'd be more confident if they were holding the stock.

  • Report this Comment On March 21, 2010, at 9:00 PM, XMFGlide wrote:

    Acmeman --

    Well reasoned and well said.

    Although I would point out that many of the recent sales have been executed according to an automatic sale plan.

    Thanks for reading.


  • Report this Comment On March 23, 2010, at 11:20 AM, VeryWiseInvestor wrote:

    You may want to check your math or explain in what way Nike has outperformed Crocs. Using the September low to the recent highs, Nike has gained about 40% while Crocs has gone up 45%. Granted Nike's rise was over $21 per share while Crocs was only $2.60 but, as a percentage of September's low, there was a lot more money made with Crocs.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1136604, ~/Articles/ArticleHandler.aspx, 10/26/2016 9:12:39 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
NKE $51.97 Up +0.92 +1.80%
Nike CAPS Rating: *****
CHD $47.83 Down -0.28 -0.58%
Church and Dwight CAPS Rating: ***
COH $35.72 Up +0.07 +0.20%
Coach CAPS Rating: ****
CROX $7.67 Down -0.09 -1.16%
Crocs CAPS Rating: **
RL $98.05 Up +0.23 +0.24%
Ralph Lauren Corp CAPS Rating: ***
VFC $54.11 Up +1.04 +1.96%
VF CAPS Rating: *****
VLCM.DL $0.00 Down +0.00 +0.00%
Volcom, Inc. CAPS Rating: ***