Earnings Scorecard: Nike (NKE)

On September 22, 2011, Nike Inc. (NKE), a sporting goods retailer, posted first-quarter 2012 results. Street analysts had a week to ponder on the news.

In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.

Quarterly Review

Nike posted strong fiscal 2012 first-quarter earnings of $1.36 per share, up 19.3% from the year-ago earnings of $1.14 per share, handily beating the Zacks Consensus Estimate of $1.21 per share.

Strong quarterly revenue growth along with lower selling and administrative expenses as a percentage of revenue, tax efficiencies and a lower average share count drove the company to post record first-quarter 2012 earnings.

(Read our full coverage on this earnings report: Nike Exceeds Estimates

Agreement of Analysts

Estimate revision trends for the upcoming quarter and fiscal 2012 portrayed mixed and positive sentiments, respectively, among most of the analysts covering the stock.

Over the last 7 days, 5 out of 15 analysts following the stock revised their estimates upward for the second quarter of 2012 while 7 moved in the opposite direction. For fiscal 2012, 16 out of 17 analysts revisited their estimates adjusting it in the upward direction.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for Nike depicts a slightly bearish analyst outlook for the upcoming quarter. Over the last 7 days the consensus estimate for the second quarter of fiscal 2012 has gone down by 1 cent to 97 cents a share. The past one week nevertheless saw the fiscal 2012 estimate going up by 13 cents to $4.96.

Our Recommendation

Given Nike’s dominance in the athletic industry and its solid fundamentals, we believe that the company has the ability to drive consistent growth. The company’s long-term strategy of aggressive emerging market expansion and focus on direct-to-consumer business as well as other brands add to our positive sentiment.

The unique amalgamation of solid balance sheet strength, free cash flow generation capability and an efficient managerial team will enhance Nike’s top-line performance in the coming quarter.

Nike’s exposure to international markets however makes the firm susceptible to currency fluctuations. The strong U.S. dollar may adversely affect the top- and bottom-line results. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the U.S. An increase in product price may have a direct impact on consumer demand.

Nike’s business remains highly competitive in both domestic and international markets running up against local as well as established players like Deckers Outdoor Corp. (DECK), Adidas AG (including Reebok) and Puma.

We maintain our long-term “Neutral” recommendation on Nike. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates no directional pressure on the stock over the near term.

Deckers Outdoor (DECK): Free Stock Analysis Report

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