20 Mar 2015

Air Jordan Future Even gross margins were flat sequentially

Nike (NYSE:NKE) reported an absolutely spectacular first quarter that beat what we thought were aggressive estimates. Due to increased expectations, we’ve upped our fair value estimate to $97 per share (was $95 previously).

North American Results: A Huge Upside Surprise Considering many pundits seem to think the United States is in/heading into/might head into a recession, Nike posted wonderful North American results. Apparel was up 23%, reinforcing our thesis that sports apparel is a tailwind industry. This industry was up 15% currency neutral, Air Jordan Future which was even greater than 9% currency neutral growth in China. As CEO Mark Parker said at Nike Analyst Day, is a growth company. Though commentary was limited, Nike also seems very excited about its upcoming NFL license. With ratings and fantasy football participation reaching all time highs, we think riding football and NFL success could be a key trend for Air Jordan 19s Nike in the back end of 2012 and early 2013.

Even gross margins were flat sequentially, in a quarter in which input costs could have easily pressured the bottom line. With higher price points and lower costs for fuel and cotton in the second half of the year, gross margins may even have a chance to expand.

Some Issues In China Although emerging market revenues were up 24% in the first quarter, China was only up 9%, with apparel down 8%. Management cited a new selling strategy that will take a Air Jordan Fusion 5 few quarters to officially roll out. Adidas had similar issues not long ago, and we don expect this one blemish to last long.

BasketBull Market Even though Nike will always be associated with Michael Jordan and the game of basketball, the company is extremely excited about growth in this large business going forward. The signature lines, led by superstars like LeBron James and Kobe Bryant, have some excellent product refreshes coming out in the second quarter, which should help grow the basketball shoe and apparel business whether or not the NBA manages to play basketball this season. We think basketball is the new soccer; accessible to everyone and becoming one of the only truly global sports.

As long as Nike continues to hoard top NBA talent, we think kids across the United States, China, Brazil, and everyone in between will continue to covet the shoes their heroes play in. Nike will then continue to make the shoes a generational status symbol that only helps build brand loyalty when Air Jordan DMP these younger players start to branch out into running, lifestyle apparel, and other sports.

Nike is building great momentum, and we think the current risks are macro issues. The company itself remains the best in class of apparel companies, and its long term growth story looks to have several more years ahead of it. Nike LeBron 11 Future orders were up 13%, indicating that we just might see a strong holiday season after all. We’re considering adding Nike to the portfolio in our market beating Best Ideas Newsletter.

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