The global leader of sports equipment and apparel maker, Nike Inc. (NKE) announced its financial results for the fourth-quarter 2011.
Street analysts had more than 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 on the stock.
Earnings Review
Nike posted strong fiscal 2011 fourth-quarter earnings of $1.24 per share, up 17.0% from the year-ago earnings of $1.06 per share, handily beating the Zacks Consensus Estimate of $1.16 per share.
Despite macroeconomic headwinds, Nike's total revenue grew 14.0% to $5,766.0 million from $5,077.0 million in the prior-year quarter, primarily driven by exceptional growth in North America and Greater China regions. The company continued to benefit from its strategy of consistently focusing on innovative products that provide a competitive edge over its rivals. Revenue for the quarter surpassed the Zacks Consensus Estimate of $5,532.0 million.
(Read our full coverage on this earnings report: Nike Beats, US & China Outshine)
Agreement of Estimate
For the first quarter of fiscal 2012, out of 16 analysts covering the stock, 2 have revised their estimates upward, while 6 moved in the opposite direction in the last 7 days. For fiscal 2012, out of 18 analysts, 7 analysts have positively revised their estimates while 6 moved downward in the last 7 days.
Magnitude of Estimate Revisions
Taking into effect analyst revisions over the past one week, the Zacks Consensus Estimate for the first quarter of fiscal 2012 has moved down by 5 cents (from $1.27 cents to $1.22 cents), while a predominantly upward revision for 2012 led to an increase in the Consensus Estimate by 2 cents to $4.81.
Our Recommendation
Given Nike’s dominance in the athletic industry, we believe that the company has the ability to drive growth consistently. The company’s long-term strategy of aggressively expanding operations in the emerging markets and focus on direct-to-consumer business and other brands add to our positive sentiment.
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 of 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 #3 Rank (short-term Hold rating) for the company indicates no directional pressure on the stock over the near term.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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