Nike Continues to Excel on the Global Stage

Nike (NKE 1.55%) just reported earnings for the second quarter of its fiscal 2014 year, and the results indicate that the company is starting to gain serious momentum. With continued brand strength and traditionally tumultuous geographic markets beginning to stabilize for the sneaker/apparel giant, Nike should remain a viable play on global growth going forward.

Solid earnings                                                                                                                                                                               Shares of Nike fell slightly the day after the company reported earnings as revenue came in just below the consensus analyst estimate. Nike reported revenue of $6.43 billion for the second quarter, which fell short of the average analyst estimate of $6.44 billion. However, Nike's reported revenue still represented growth of 7.88% from 2012's comparable quarter.

However, the company did beat the average earnings per share estimate. Nike posted diluted earnings of $0.59, which beat the consensus estimate of $0.58 and represented growth of 4% on a year-over-year basis. 

The slight revenue miss was likely a reason that shares of Nike slipped over 1% the following day. However, Nike is still up an impressive 50% in 2013 alone.

Powerful brand                                                                                                                                                                                 A key takeaway from management's conference call was the incredible strength of the Nike brand. President of Nike Brand Trevor Edwards explained, "On a constant dollar basis, the Nike brand was up 9% for the quarter with growth across all key categories, product types and geographies." 

The brand is growing especially well via direct-to-consumer platforms. Nike's DTC business increased revenue 19% in the quarter, driven primarily by new store openings and continued strength in the company's online businesses. Standouts for the brand include the basketball and soccer categories.

On the basketball front, Nike is keeping its foot on the throttle as it is set to deliver a new sneaker from Kobe Bryant called the Kobe 9 "Masterpiece," which follows on the heels of successful sneaker launches such as Kevin Durant's KD 6, Lebron James' Lebron 11, and Chris Pau's CP 3.7. Additionally, the popular Jordan brand continues to perform well. 

On the soccer front, Nike is experiencing a ramp up in business due to the impending World Cup, which is now just six months away. Trevor Edwards explained, "Above all else, the World Cup lets Nike showcase our game-changing product innovations on the global stage." 

To capitalize on the global stage that the World Cup provides, Nike has launched team kits for the soccer clubs of France and Brazil in addition to new products like the Hypervenom boot. 

The most important takeaway here is that Nike is successfully making the most of its prominent industry positioning. This is demonstrated perfectly in the sports of basketball and soccer, where Nike is increasing brand awareness by fostering relationships with high-profile athletes and teams. Nike is in a unique position in this regard, as smaller competitors like Under Armour (UAA -0.76%) and even Adidas (ADDYY 5.60%) simply can't keep pace with the sports juggernaut on a global scale.

Improving markets                                                                                                                                                                     Another important takeaway from Nike's recent report is that key markets like China are beginning to stabilize. Revenue growth in China increased 5% in the quarter, driven primarily by management's direct approach to enhance efficiency. The company is now targeting consumers more specifically and this has led to a 20% increase in direct-to-consumer sales in the second quarter. 

Trevor Edwards explained, "We are confident our strategy will set the foundation for sustainable, profitable growth in China over the long-term and we are making good progress." 

Strong growth                                                                                                                                                                               Despite being a much larger company than its competitors, with a market capitalization of $68.8 billion compared to Under Armour's $9.09 billion and Adidas' $25.8 billion, Nike is still growing relatively well. The following is a breakdown of the company's projected growth rates for its next fiscal year, which ends in May 2015, compared to growth expectations for Under Armour and Adidas in 2014: 

Not surprisingly, the smallest company, Under Armour, is projected to lead its competitors in regard to both revenue and earnings-per-share growth going forward. However, Nike is projected to lead Adidas in revenue growth and it is not too far behind both listed competitors in terms of EPS growth.

Domination
Dominant is the word I would use to describe Nike's global positioning in the athletic footwear/apparel market. The company's ability to innovate is impressive, even after decades of growth. However, it is Nike's strong brand recognition and the relationships the company continues to forge with popular athletes and teams around the world that ensure global competitors like Under Armour and Adidas will remain a step behind for the foreseeable future.