Nike Battles Upstart Under Armour, High Expenses

This article was originally published by TheStreet and also appeared on Yahoo! Finance

By Sarfaraz A. Khan, Research Assistant: Gohar Yousuf, February 24, 2014

NEW YORK (TheStreet) -- Nike (NKE_), the world's leading manufacturer of athletic footwear, apparel and equipment, delivered good quarterly results with strong direct-to-consumer sales growth. In the meantime, its rival Under Armour (UA_) has also impressed investors with a blowout performance. And in the coming quarter, Nike will likely continue posting strong numbers for direct-to-consumer sales.

Is Nike a slam dunk, then?

Maybe not

Investors should remain cautious, as Nike is still struggling to rein in its expenses. Moreover, the business's performance in China and other emerging markets is far from satisfactory. The company has not reported any growth in combined revenues from these two regions in the first six months of the current fiscal year.

Nike Struggles With Growth In China Amid Increasing Competition

Despite strong earnings, Nike (NYSE:NKE) continues to struggle in China where its growth prospects look challenging amid increasing competition from domestic and international players.

 

The leading sports apparel and equipment manufacturer Nike (NKE) is still struggling in China. In its previous quarterly results posted around a month ago, the company delivered strong earnings and managed to beat the consensus estimates. The robust result came on the back of an increase in demand and a drop in costs related to raw materials. However, its performance in China was far from satisfactory while its future, in this enormous market, still looks challenging. 

Strong Growth, Except China 

In the first quarter of fiscal year 2014, Nike’s revenues rose 7.7% to $6.97 billion from $6.47 billion in the same quarter last year, which is in line with Wall Street’s expectations. Its earnings rose 37.6% from the same quarter last year to $0.86 per share, comfortably beating analyst’s estimate of $0.78 per share. 

The growth in revenue can be attributed to all of its brands that reported an overall growth in revenues to 7%; including Footwear’s growth of 7%, Apparel’s growth of 6% and Equipment’s growth of 4% from the same quarter last year. Nike’s Men’s training, soccer, basketball and running categories performed really well and offset the current decline in sportswear. Nike’s wholly owned subsidiary Converse also posted strong growth. Its revenues rose 16% to $494 million due to better performance in the UK, North America and China. 

In the previous quarter, Nike reported reasonable growth numbers in almost all of its operating regions, except Greater China. Although the company also reported just 1% growth in Japan, but in China, unlike all other regions, Nike’s quarterly revenues dropped by 3% year over year, excluding the impact of currency changes, to $574 million. 

China’s Performance

The company reported a drop in sales of Footwear and Equipment segments while Apparel showed a growth of 6%. Due to margin expansion efforts and a drop in demand creation expenditure, Nike reported ….  Read full article at GuruFocus