Nike bounces back in China hard

On Thursday evening after the market closed in the US Nike released third quarter results which sent the stock up 11%. If you need reminding the Nike share price hit a speed bump a long with the Chinese economy last year. Sales had slowed in that region and inventory was oversupplied. The shares slowly started creeping back as things proved to be not as bad as everyone initially thought and has now surpassed all time highs again. I can safely say we stuck to our guns and added to the stock whenever the opportunity arose and will carry on doing so. Let's look at the numbers.


Revenues from continuing operations increased 9%, 10% if you exclude currency changes. Diluted headline earnings per share were up 20% to 0.73c. EPS comfortably beat revenue growth because of margin expansion (increased 30 basis points to 44.2%), a lower tax rate and the share buyback. Future orders are up 7%. Earnings for the full year are expected to come in at $2.64 for 2013 and $3 for 2014. Trading at $59.53 the share trades at just under 20 times 2014 earnings. That may seem expensive but the company is expected to achieve double digit growth for the next 4 years at least.


Here is what CEO Mark Parker had to say about the quarter. "Our team delivered strong results in Q3. We did it with a relentless flow of innovation into our key categories. Given the diversity of our portfolio, we're able to capture big opportunities that drive sustainable, profitable growth. At the same time we continue to invest in new ways to enhance athletic performance, build strong consumer communities, and improve how we design and manufacture our products. That's how we increase our potential and drive shareholder value."


As I mentioned above, we really like the long term story here. Sales growth in mainland China is still slow as they pump the promotions and discounts so as get rid of the excess inventory there. But that region will come right. Growing GDP at 7.5% which is already off a high base means billions of Renminbi being created for disposable income. If you earn more you consume more, especially calories. This means you need to burn those calories away. Exercise and a healthy lifestyle come hand in hand with a better standard of living.


Nike has put themselves at the forefront of innovation and brand awareness amongst sports apparel. They are the ultimate aspirational brand in this division and it seems like their marketing division will not let this slide even though they have had some unfortunate athlete mishaps. As the world grows GDP Nike will benefit at a much faster rate. We continue to add to Nike as one of our core Vestact holdings in New York.