This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Nike Battles Upstart Under Armour, High Expenses

NEW YORK (TheStreet) -- Nike (NKE - Get Report), the world's leading manufacturer of athletic footwear, apparel and equipment, delivered good quarterly results with strong direct-to-consumer sales growth. In the meantime, its rival Under Armour (UA - Get Report) has also impressed investors with a blowout performance. And in the coming quarter, Nike will likely continue posting strong numbers for direct-to-consumer sales.

Is Nike a slam dunk, then?

Maybe not.

Investors should remain cautious, as Nike is still struggling to rein in its expenses. Moreover, the business's performance in China and other emerging markets is far from satisfactory. The company has not reported any growth in combined revenues from these two regions in the first six months of the current fiscal year.

Must Read: Salmon: Those Noisy Payrolls Figures

Nike's shares have risen by nearly 10% in the last six months, to $72.67. Its price-to-earnings ratio is 24.8, making Nike considerably cheaper than Under Armour by that metric.

Growing the Top and Bottom Line

In its recent quarterly results, Nike posted an 8% year-over-year increase in revenues to $6.43 billion, which was slightly below market expectations of $6.44 billion. The company's net income rose by a massive 40% from last year to $537 million, or 59 cents per share, just above market expectations of 58 cents per share.

However, this enormous increase in profits was largely due to the $137 million in losses related to discontinued operations that were included in the prior year's results. Considering just the income from continuing operations, Nike's profits are up a modest 3%.

The business benefited from an increase in sales of higher-margin products, as Nike's gross margin increased by 140 basis points to 43.9%. The firm's margins also improved due to lower input costs and 20% growth in comparable-store sales in direct-to-consumer stores.

Moreover, Nike's total global future orders are up 12%, which shows a bright outlook. Orders were up 8% in the previous quarter and 6% a year ago. The business's future orders indicate expected growth in sales of athletic footwear and apparel between December 2013 and April 2014.

Meanwhile, Under Armour came forward with even better results, with double digit top and bottom-line growth. Unlike Nike, the business's revenues and profits surged by 35% and 28%, respectively, from last year. Under Armour's 36% growth of direct-to-consumer sales also easily surpassed Nike's. Like Nike, Under Armour also benefited from a favorable sales mix, which is why the business's gross margins expanded by 100 basis points to 51.3%.

While Under Armour's results were clearly better than Nike's, both companies have posted strong direct-to-consumer sales numbers and are more optimistic about the future, which is evident in Under Amour's guidance and Nike's future orders.

In the coming quarter, I think Nike will likely post double-digit growth in direct-to-consumer sales. The company has other problems, though.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
NKE $59.11 0.00%
UA $39.51 0.00%
AAPL $94.19 0.00%
FB $118.06 0.00%
GOOG $695.70 0.00%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs