Nike Inc. Highlights 1 Challenge With Being a Global Giant

Nike's most recent earnings report showcased one challenge it faces that its U.S.-centric competitors don't.

Mar 25, 2014 at 11:30AM

Nike (NYSE:NKE) may be one of the business world's most recognizable names by a long shot, but it's not always easy being a global industry stalwart.

Although shares of Nike initially rose nearly 3% after the bell Thursday following its better-than-expected quarterly results, Nike stock has promptly reversed course to fall more than 5% since then.

So, what happened?

First, investors are rightly concerned by Nike's 3% decline for reported futures orders in China, where the company currently derives nearly a quarter of its operating income.  

However, I'm willing to give Nike a pass here, as it undertakes a market reset in the region. Notably, this involves placing greater focus on Nike's higher-margin direct-to-consumer sales in China, which grew 11% during the quarter.

One big "problem" with global exposure
On a broader scale, however, much of investors' negative sentiment came in response to one key challenge going forward. Specifically, during the subsequent earnings conference call, Nike CFO Don Blair stated "this year's devaluation of developing market currencies will be a significant drag on next year's reported revenue, gross margin and profit growth."

So there you have it: While Nike's overall business is still chugging along nicely, those pesky foreign exchange headwinds are expected to continue putting pressure on the growth of Nike's top and bottom lines.

Of course, that doesn't mean Nike is a broken stock. Instead, it's merely one of the pitfalls of operating a multibillion-dollar business on a global scale.

What's more, this is something Nike's primarily domestic competitor Under Armour (NYSE:UA) simply doesn't have to deal with. Though Under Armour is working hard to expand its global presence now -- earlier this month, it held a press event to launch the Under Armour brand in Brazil -- Under Armour still derived more than 93% of its total revenue from North America last quarter. By contrast, Nike brand footwear, apparel, and equipment most recently relied on North America for less than 47% of its $6.55 billion in total sales. 

What's more, this shouldn't have come as a huge surprise considering emerging markets' instability has threatened to derail our wider bull market for months now. That doesn't mean it will happen, but the risk is finally becoming more apparent as companies like Nike increasingly bring it to the forefront of their financial planning.

Nike is still being proactive
Luckily for investors, Nike isn't sitting on its heels waiting for the forex situation to turn in its favor.

When asked by analysts whether currency devaluation affects the company's capital allocation strategy, Blair insisted Nike's "financial management absolutely is driven by where we see the currency going." Furthermore, they can reduce the negative effects to some extent by temporarily minimizing the level of receivables in those respective markets.

However, Blair also reminded investors to maintain a long-term outlook, saying that if they believe any given market will stay healthy down the road, Nike can gain share by remaining committed and building out its business as their respective middle classes expand.

And that, my fellow Fools, is exactly the kind of view truly Foolish investors should love to hear. All things considered, that's why I think Nike's pullback represents a fantastic opportunity for patient shareholders to build their long positions.

There's more where this came from
Remember, Nike also rewards investors for their patience with a healthy 1.3% dividend.

And that's a great thing considering one of the secrets few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Steve Symington owns shares of Under Armour. The Motley Fool recommends and owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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