Nike numbers beat

On Friday we received fourth quarter and full year results from one of our big recommended stocks in New York, Nike. Let's predominantly look at the full year numbers and see if we can pick up any trends from the quarterly figures.


For the full year, revenues were up 8% to $25.3bn, this is up 11% if you exclude currency changes. This resulted in headline earnings per share to increase 11% to $2.69. All though it may not seem like it from these numbers, this has been a tough year for Nike. We will talk about that later. Let's first look at valuations. The stock trades at 63.68 (up 2.18% on the day) which puts it on a historic valuation of 23.7. Earnings for next year are expected to grow 18% to around $3.18 which puts the stock on a 1 year forward rating of 20 times. For a stock growing earnings at 18% that seems fair.


So why was it such a tough year for Nike? China which compromises around ten percent of Nike sales had a tough period. Not only was there slowing growth in the region but the company themselves pumped too much inventory geared towards the Chinese consumer which, for a lack of a better explanation, was not what the Chinese consumer wanted. They had misread the consumer and this forced them to sell this inventory at big discounts. This meant that the region which is historically fast growing for the business actually decreased sales by 3% for the year. If you look at the quarterly numbers however this is stabilising.

The strong growth was very much thanks to North America which grew sales by 18% for the year. This region comprises 41% of sales. The next biggest region is Western Europe which had flat sales for the year and compromises 18% of sales. Sales can often fluctuate on the back of big sporting events. Although they don't always happen, it is certain that they will happen and we know when they will occur. I am sure the Soccer World Cup next year will have a big influence.


It is encouraging to see that gross margins increased by 10 basis points to 43.6%. This is on the back of big pressure from wage increases in developing markets where Nike produce most of their apparel and of course the big discount they had to implement in China. The Nike brand allowed for the company to push costs onto the consumer and increase prices elsewhere around the world.


I am very pleased with these numbers. Nike is one of the ultimate aspirational consumer brands because not only is it deemed 'cool' around the world but it also plays with the theme of getting fit and healthy. Sport tickles that competitive instinct deep down in every Human. Our ancestors used to fight in wars, thankfully sport has replaced most of that. Nike have managed to place themselves in a very good position to benefit from this whether it be apparel, footwear, equipment or innovative products like the Nike Fuel Band which measures energy. We continue to add to this stock.