December 28th, 2013
by Mitchell Clark, Profit Confidential
You have to be careful with corporate earnings reporting, as well as financial headlines. So much of it can be misleading and incorrect in terms of conveying what business conditions are really like for a company.
And comparable numbers, especially, can give the illusion of financial growth, even though they may actually still be a decline from previous periods. We saw a lot of this in 2010 and 2011, when earnings results looked like they were growing, but for many corporations, the numbers were worse than in 2007/2008.
However, one company that consistently does an excellent job at generating real growth is NIKE, Inc. (NKE). It's actually quite amazing that such a mature brand can keep growing like NIKE does. Clearly, the business of selling sneakers is a good one.
The company's fiscal second quarter of 2014 saw total sales grow eight percent to $6.4 billion, with sales of NIKE-branded products improving nine percent (currency neutral) to $6.1 billion and "Converse" sales growing 11% to $360 million.
Notable in the company's latest financial results was a solid improvement in its gross margin due to higher average prices and greater sales of higher-margin products due to upcoming global sporting events, like the FIFA World Cup and the Winter Olympics.
Earnings were $537 million, growing three percent over the comparable quarter and four percent on an earnings-per-share basis.
The company bought back 5.5 million of its own common shares in its most recent quarter for $402 million. Since September of 2012, share repurchases totaled 29.2 million shares for $1.7 billion at an average price of $58.82 per share.
Global future orders of NIKE-branded footwear and apparel for delivery between December 2013 and April 2014 is running 12% higher than last year (13% currency neutral).
On the stock market, NIKE hasn't really been down in price for very long. It's mostly consolidated during periods of market weakness. The company's 10-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
NIKE is a global brand, and it's the kind of position that I think is welcome in any diversified, long-term portfolio. Even though it's a mature enterprise, the company consistently delivers the financial goods.
NIKE is the third featured stock I'm highlighting in a series of bedrock companies that investors can consider as core holdings in a long-term portfolio. (See "My First Pick in a Series of Core Investment Portfolio Holdings.")
In November, NIKE increased its quarterly dividends by 14% to $0.24 a share, representing the company's 12th consecutive year of increased income for stockholders.
Management's stated goal is to deliver high single-digit annual revenue growth with earnings-per-share growth in the mid-teens. Total sales for fiscal 2015 are estimated at $30.0 billion, growing to $36.0 billion by fiscal 2017.
NIKE boasts an excellent track record of success, both operationally and on the stock market. While past results can't foretell the future, this track record is meaningful for investors looking for positions that they can hold without having to worry about them. This company could be a worthwhile addition to any long-term investor's wish list.