Nike, keep on running!

Last night we had numbers in the US from what has turned out to be a very resilient company in times where the consumer is supposed to be broken. I'm talking about Nike, pretty sure you have heard of them. They came out with Q1 results which comfortably beat expectations, managing to grow sales in all their regions except for Western Europe.


Earnings per share came in at $1.36 for the quarter whereas the general consensus sat around $1.21. Expectations for the year come in at around $4.92 which values the stock at around 18 times forward earnings. This is using the afterhours price of $88.71 which is up 5.4% on the news. Clearly the market likes what they have seen. The stock still trades about 11% below all time highs reached in July.


Revenues had grown 12% from last year's first quarter while they saw a 30% increase in the online business. Times are changing. Per region, North America, their biggest market actually showed fantastic growth. I thought in that region the consumer was finished? Revenues were up 15% whilst earnings in the region grew 21%. In Western Europe revenues were flat mainly due to comparisons with last year's Soccer World Cup. Of the Western European teams Portugal, Holland and France were sponsored by Nike. I suppose that's a decent enough excuse. Plus Holland made the final although I doubt they sold many French shirts following their infamous exit. Maybe next quarter will improve if France or England succeeds at the Rugby World Cup. Personally I'll be supporting the green Canterbury jersey thank you. They did manage to grow revenue by 14% in Central and Eastern Europe however.


In China revenues increased by 9% thanks to good growth of 21% from the footwear division. Earnings only grew by 4% in that region due to slightly lower margins and increases in investments. Surprisingly Japan revenues advanced 17% but only 5% on a currency neutral basis. You see, the yen is stronger so that had a positive impact on a company reposting in dollars.


Notice a trend? Good growth in developing markets. 24% on a currency neutral basis in fact. Unfortunately Africa is not even mentioned. Come on guys, Paul even buys his work pants from Nikes golf clothing, give him some credit! But again these results reiterate our thesis on developing market aspirational consumerism. Nike have a fantastic brand which very much represents the American athlete. Not only do people aspire to wear such clothing but with more and more people entering the middle class, more people will eat more foods and will need to exercise to burn off those extra calories.


Prospects look positive. Predictions for the next quarter sales can be reasonably accurately because retailers make orders for delivery in the next quarter. They expect revenues to be up in the mid to high teens. Margins are an issue (down to 44.3% from 47% which is still fantastic) as input costs increase. But they have planned price increases in the second half of the year which should mitigate this somewhat. We continue to add at these levels and look forward to next year's Olympic games and The Euro Championships just as much as Nike.