On Tuesday, Nike reported net income of $785 million, up 20%, while revenue rose 4% to $7.69 billion. Converse revenue was down 5% to $398 million. Ex-currency revenue rose 12%. Worldwide future orders jumped 20%, excluding currency.
Nike's e-commerce business is incredibly strong. Sales on the Web site grew 50%, as the company rolled out customized sites for Canada, Switzerland and Norway. The company remains on track to grow direct-to-consumer sales from $6.6 billion this year to over $16 billion by 2020.
The only blemish on the earnings report was higher-than-expected inventory. The company ended the quarter with $4.6 billion in inventory, up 11%. Management blamed the excess inventory on the aftereffects of the West Coast port strike earlier in the year. So far, the added inventory hasn't caused any headaches. Gross margin increased 50 basis points to 45.6%
On the conference call after the earnings release, management reaffirmed fiscal 2016 guidance. The company sees third-quarter revenue up by high single digits to low double digits, or high teens on an ex-currency basis. For the year, the company is expecting revenue to grow by mid single digits vs. the consensus of 7.1%.
Management continues to be very positive on its China business, especially since Chinese revenue was up 24% this quarter and its future business is expected to be up 31%.
The stock is up 38% this year and is scheduled for a 2-for-1 split after the close of trading on Wednesday.
It's hard not to like Nike. The company continues to execute well despite strong headwinds from the strong U.S. dollar. Nike is on track to hit $32 billion in revenue this year and $36 billion next. Risks include weaker-than-expected growth in North America or China, continuing headwinds from foreign currency and valuation.
Right now, most analysts think Nike can trade as high as $145, or 33.5x fiscal 2016 estimates of $4.32. That's well above its historic multiple of 25x.
As for me, I'm on the fence. While the company does have 14 straight quarters of strong results, if you go back to 2013 and 2014, when the company only grew revenue by 4.9%, the stock didn't look so peachy. It was only after mid-2014, when investors begin to look forward to 2015, that the stock took off. And don't forget 2012, when earnings per share went from 13% to 8%. The stock barely moved all year.
In my opinion, the easy money has been made in Nike. While the company can still keep growing, you have to worry the strong dollar will cause the company to break its earnings streak. Up at 33 times estimates, a slight miss could cause the shares to be benched.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.