Nike 3Q results

Last night we had 3Q results from NIKE, INC which mostly beat estimates. The big trend in the results was that the stronger dollar had a significant impact on the revenue figure and the earnings figure.

The revenue for 3Q are up 7% (13% removing the negative currency effect) to $ 7.5 billion, with the Converse brand growing 33%. Having said that revenue from Converse was $538 million which is in the same ball park as the sales on their Lebron James shoes, which was $340. Revenue from China is up 15% and Western Europe up 10% (21% if the Dollar/Euro hadn't moved so much). The increased sales was also accompanied by an increase in gross margins, from 44.5% to 45.9%. The number is expected to continue growing.

What does all of this mean for earnings? Net income was up 16% and diluted earnings per share was up 19%, due to there being fewer shares in issue. Nike bought back 6.5 million shares in the last quarter and a total of 74.1 million shares at an average price of $71.13 a share, since 2012. Share buybacks in a growing company that has spare cash is a great way of returning value to the shareholder.

An area that Nike have been struggling is their equipment division, which was down in 4 of their six regions. They don't breakdown which products in their equipment division did badly but based on figures from the previous quarter, the huge drop in golf players would definitely be a big contributing factor. The division is small though with revenue of only $382 million out of the $7.5 billion made this quarter.

The market really liked the numbers with the stock being up 4.5% after hours, meaning that the stock has broken the $100 mark. Going forward EPS is expected to grow in the low double digits. Given the move from society towards being more healthy (more exercise), Nike being a very well know brand, margin growth and double digit EPS growth the stock is trading at a P/E of around 30. Not cheap by some metrics but fairly valued I think. Still a buy in our books.