Nike 1Q results

Nike, one of the core Vestact recommended stocks reported numbers last evening, this was for the first quarter of their 2016 financial year. On a currency neutral basis sales increased 14 percent, up 5 percent in Dollar terms to 8.4 billion Dollars. Diluted earnings per share clocked 1.34 Dollars, up an astonishing 23 percent, due to higher gross margins, lower tax rates and most importantly a reflection of stronger revenues. Future orders in Dollars up 9 percent, excluding currency changes, up 17 percent. Yip, this is certainly, as their landing page of their investor relations says, a growth business. Tick that box! That is corny.

What is not corny, and the jeans manufacturers have alluded to this, is that the athletic leisure segment is increasing markedly. People wearing athletic wear as it is comfortable and stylish at the same time. The person wearing the clothes enjoys the comfort, the added bonus is that they are definitely stylish. And like Apple, they are not cheap, they are very expensive. CEO Mark Parker's comments in the Press release sum it up: Our relentless pace of growth is driven by our proven strategy of putting the consumer first, obsessing innovation in everything we do and leveraging our powerful portfolio. We're well-positioned to continue to deliver long term growth that is both sustainable and profitable.

After all is said and done, Nike is still very much a footwear company, selling more than 2 Dollars worth of shoes for every one Dollar of apparel. Check it out from the sales breakdown for product line:



Nearly 65 percent of all sales come from North America and Europe, this is still very much an aspirational brand in many parts of the developing world. China for instance, Nike sales grew 30 percent in Dollar terms (yes, it sounds like China is finished), yet on a quarterly basis Nike does not even do one billion Dollars worth of sales. China sales are around half of Europe, roughly ten percent of global sales. Emerging markets as a collective are 11 and a half percent of total sales. There is clearly much room for growth, bearing in mind that you can't replicate quality at a cheaper price. Otherwise of course it would have been done.

Brand recognition is key, association is also key. All NFL teams are sponsored by Nike. The Indian cricket team is sponsored by Nike, perhaps they need to sponsor Bangladesh too (and Pakistan) to be branded in front of the most cricket eyeballs globally. Manchester City in the Barclays Premier League, no more Arsenal or Man U. They do have Barca FC however! As well as the national football team here. Only one rugby team, the Argentina team, and Saracens, well done Johann Rupert. The real Fed (Roger), Venus Williams (arguably the greatest tennis player in 25 years), Rafa and Maria Sharapova all are sponsored by Nike. US College sponsorship is strong, Byron once told me a story of a basketball team having to change to Nike to attract young athletes. True story.

The numbers crushed expectations, with the stock up as much as 8% in after hours trading. With many things in life, you get what you pay for and Nike is no different. The stock is not cheap at 30 times current earnings but is well positioned to take advantage of the growth in the global middle class, the shift to healthier living and the athletic leisure sector. Still a buy in our books.