Just a few months ago, Mr. Market was pulling his hair out over Nike's (NYSE: NKE) stock. The company missed fiscal-third-quarter estimates and was among the litany of companies smarting from higher commodity costs. In the day following that "dreadful" earnings announcement, the stock dropped nearly 10%.
And yet, at least to this Fool, it was pretty plain to see that the Nike brand was still strong, future orders were holding up, and it was leveraging its selling and administrative spending. Fast-forward to today and we have the exact opposite reaction to a glowing fiscal-fourth-quarter report and earnings that easily hopped over expectations.
Nike reported fourth-quarter revenue of $5.8 billion, which -- excluding currency changes -- was a gain of 11% over the prior year. Earnings per share jumped 17%, to $1.24. Wall Street was looking for $1.16 in earnings per share on revenue of $5.5 billion.
Looking ahead, demand certainly seems to be holding up for Nike. On a currency-neutral basis, future orders were up 14%, 10%, and 17% for North America, Central and Eastern Europe, and China, respectively. Emerging markets look even stronger for Nike, with future orders up 23%. The only growth holdouts -- Western Europe and Japan -- are not surprising at all as Europe deals with a sluggish economy and a debt crisis, while Japan continues to recover from its devastating disasters.
But what about that inflation?
Commodity cost pressures haven't gone away. The company's gross margin fell and though there were a few factors at play, commodity prices helped push up the cost for things like freight.
But here's the rub for Nike investors: Companies throughout the consumer space have been struggling with rising costs, but Nike is in a very different position than most of them. Companies like Procter & Gamble (NYSE: PG), Clorox (NYSE: CLX), and Colgate-Palmolive (NYSE: CL) aren't just facing rising costs, they're also having to battle back the onslaught of private-label competitors who are luring away strapped consumers with lower prices. Certainly Nike faces competition of its own, including from lower-priced challengers. But given the momentum that Nike continues to see, it's obvious that the purchasing math for consumers is different on a pair of sneakers or technical apparel than it is on laundry detergent or toothpaste.
As bullish as I've been on Nike's business, I haven't been crazy about the stock because of the price. At roughly 20 times trailing earnings, Nike looks cheap against a close competitor like Under Armour (NYSE: UA), which trades at 45 times forward earnings, but Under Armour's growth makes even Nike's considerable pace look sluggish. And it's quite possible that both stocks are simply pricey.
Of course, that's primarily an issue if you're sitting on the sidelines thinking about buying Nike right now. If you're already an investor, your best bet is probably to sit tight and enjoy owning a very high-quality company.
