Market Overview

NIKE's Margins Fail to Impress Investors


Global sports apparel manufacturer, NIKE (NYSE: NKE) announced its third quarter earnings yesterday after the close. The company reported an EPS of $1.20 versus $1.17 estimate and revenues of $5.85 billion versus $5.82 billion estimate. NIKE also announced that its third quarter futures orders growth rate was 15%, which includes forex headwind of 3%.

Mark Parker, President and CEO of NIKE stated: “We had a strong third quarter. Our relentless focus on innovation delivered powerful new products and services for athletes and consumers, and continues to drive value to our shareholders. The environment remains volatile, but I'm optimistic about the future. We're starting a great season of major sports events and we have a pipeline full of innovation to fuel growth over the long term."

NIKE also said it sees the fourth quarter growth in double low digits. In addition, the company reiterated its 2012 fiscal year sales growth guidance to be in mid-teens.

Although the company's earnings look strong and the management's outlook remains positive, investors were not thrilled and the stock is trading 3% lower on today's trading session. This selloff brought NIKE down to test its 50-day moving average on a heavy volume, but the stock has been able to hold above this key technical level.

McAdams Wright Ragen analyst, Sara Hasan, told Benzinga that she sees NIKE's weaker than expected gross margins as the main catalyst behind today's less than stellar stock performance. Hasan noted that she thinks the company has been trading at a premium and that NIKE needs all the numbers and figures to be perfect in order to maintain its current valuation.

On the other hand, Hasan also mentioned that, although NIKE is facing increasing input costs and wage levels, it is able offset some of these extra costs by increasing prices and utilizing recently added manufacturing capacity. Lastly, Hasan noted that the Olympic year will have a positive impact on NIKE's topline growth. However, the aforementioned costs, which have a negative impact on the company's margins, might hinder NIKE's bottom-line growth.

In spite of the margin concerns, today's dip lower could offer bullish traders a buying opportunity. NIKE mentioned that the company has new innovative products in the pipeline and that it expects the fiscal year 2013 margins to be higher than the margins in 2012. The company has a strong pricing power and the large sports events, such as the Olympic Games and Euro 2012 football (soccer) championship tournament will help NIKE's topline growth.

You can follow me on Twitter @TuomoKallio

Posted-In: Euro 2012Earnings Long Ideas News Short Ideas Movers Trading Ideas Reviews Best of Benzinga


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