Better 2Q numbers, less anxiety

Nike reported numbers last evening, for their second quarter, after the bell had rung for the close. It was a beat by most metrics that matter for folks that look at the headlines. I learned something new (which is always a good thing) yesterday, the chief executive, who is essentially a Nike lifer, Mark Parker was on the design team with Tinker Hatfield. So? Both of them actually were considerably good track athletes at university (college), where Tinker actually held the pole vault record at University of Oregon, where he was coached by Phil Knight's mentor and co-founder of Nike, Bill Bowerman.


Ah-ha. So, there is a theme here, all these fellows were once quality athletes at a regional level. Nike founder Phil Knight himself was coached by Bowerman and boasted a 1 mile best of 4 minutes and 10 second. Put that in your waffle shoe and run it. If Bowerman were still alive, he would be 106 next year, alas his time was up way before the tech bubble burst, he was much older and helped shape the Knights and Parkers, the Hatfields and co., the people that are Nike today.


Back then it was Blue Ribbon Sports (you must read the book Shoe Dog: A Memoir by the Creator of Nike), and they sold other shoes, a company that would eventually become Asics. My point is that the company management have all lived as athletes in the business, and have seen it grow sharply over the years to a 30 billion Dollar plus annual revenue company.


Nike has a slightly different cycles to many other businesses, their second quarter ended at the end of November, rewind 6 months and you come up with an April year end. Revenues for the quarter were 8 percent higher to 8.2 billion Dollars, diluted earnings per share rose 11 percent to 50 cents for the quarter. The company was pretty aggressive in their buyback in the quarter, buying 900 million Dollars in stock, as part of the 4 year 12 billion Dollar repurchase program.

So far, the company is at 3.1 billion Dollars, just over one-quarter of the way to the buyback target. For a reference point, at the market close last evening, the market capitalization of the business was 86 billion Dollars. So they are looking to, when the program ends, buy back around 10 percent of the company market cap as it exists now. That is pretty phenomenal, and what it does (provided all the shares are retired) is boost the earnings per share on the ones that remain behind. The same company earnings on fewer shares in issue.


The group does around 27 percent of all their sales in footwear in North America, 15.5 percent in apparel in North America (a little equipment sales) for a grand total of 44.6 percent North America. So, essentially it is easy to see why the analyst community see this as a home base company. Meanwhile (back at the ranch as they said in the old days), total sales in China exceeded 1 billion Dollars in quarterly revenue, up 19 percent on same currency sales across that territory. Western Europe was also strong, reporting same currency sales of 11 percent more than this time last year. Good strong growth in their two next biggest territories, which is encouraging, I am pretty sure that there has to be some currency headwinds at some stage.


From a profits point of view, Europe was hit by currencies, a strong Dollar definitely impacting on group margins too. Currencies are almost impossible to manage, damned if you do, damned if you don't is the sense I get, at least from the viewpoint of the analyst community. Whilst some of the anxieties around losing market share to rivals, like Under Armour and a resurgence of competitor Adidas have been real, I think that they are a little overdone. Nike is still comfortably a solid growth business, having recorded now the 28th straight quarterly increase.


Not only that, I suspect that some of the gizmos that we see (no shoelaces need to be tied ever again) will become more mainstream. Wearable tech. The technology really does change, just look at your latest and older shirts, shorts and shoes, and you will see that this is definitely the case. We continue to accumulate what is a well priced stock of an incredible business with great runway ahead, buy!


The anxieties over future orders seem to have dissipated a little, I suspect that there will be a little momentum for the stock in the coming days and weeks. And who knows, the laggard of the Dow Jones may well be the best catalyst for an assault on 20 thousand points for the Dow Industrials.