On Dec. 19, sportswear giant Nike (NYSE:NKE) released second-quarter 2008 earnings for the period ended Nov. 30.

  • If there is one nit to pick with these results, it would be this: Earnings growth isn't keeping up with sales growth, so the margins are getting slimmer.
  • On the other hand, free cash flow now outstrips net income, just the way Fools like it.
  • Nike has few true rivals in the sportswear market. German powerhouse adidas AG (OTC BB: ADDYY.PK) is a four-star CAPS stock, with a 97% approval rating versus Nike's 93% -- but it's an illiquid Pink Sheets issue here in the States.

(Figures in millions, except per-share data)

Income Statement Highlights

Q2 2008

Q2 2007

Change

Sales

$4,340

$3,822

13.5%

Net Profit

$359

$326

10.4%

EPS

$0.71

$0.64

10.9%

Diluted Shares

506.2

507.3

(0.2%)

Get back to basics with the income statement.

Margin Checkup

Q2 2008

Q2 2007

Change*

Gross Margin

44.3%

43.4%

0.9

Operating Margin

11.3%

11.3%

(0.0)

Net Margin

8.3%

8.5%

(0.2)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q2 2008

Q2 2007

Change

Cash + ST Invest.

$3,072

$1,907

61.0%

Accounts Rec.

$2,617

$2,376

10.2%

Inventory

$2,224

$2,167

2.6%

Liabilities

Q2 2008

Q2 2007

Change

Accounts Payable

$1,054

$880

19.7%

Long-Term Debt

$436

$384

13.8%

The balance sheet reflects the company's health.

Cash Flow Highlights

Q2 2008

Q2 2007

Change

Free Cash Flow

$511

$227

125.1%

Free cash flow is a Fool's best friend, even when we only have one part of the equation.

Competitive Context

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating

Nike

$33.17 

20.09

****

Crocs (NASDAQ:CROX)

$3.43 

23

**

Under Armour (NYSE:UA)

$2.14 

46.2

***

Columbia Sportswear (NASDAQ:COLM)

$1.63

11.9

****

Nautilus (NYSE:NLS)

$.19

64.5

**

Using the latest reported numbers from Yahoo! Finance and Motley Fool CAPS.

Keep your partners close and the competition in your vest pocket.

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Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

Columbia Sportswear is a Motley Fool Hidden Gems recommendation, and Under Armour is a Rule Breakers pick. Learn more with a free 30-day trial pass or two in your back pocket.

At the time of publication, Anders Bylund had no position in any company mentioned. Fool rules are here.