Nike Still Setting the Pace

NEW YORK (TheStreet) -- With shares of Nike (NKE) soaring to new all-time highs following the company's strong fiscal first-quarter earnings report, it's hard to believe there was ever a point in the not-so-distant past when the Street seemed too fixated on the company's struggles in Europe and China. However, as I've noted here and here, despite these obstacles, Nike very rarely (if ever) trips over its own feet. And it was only a matter of time before management cleared the hurdles with more innovation and product development.

Today, with China showing modest growth improvements, combined with strong acceleration in Nike's futures, the athletic-wear giant, which has never struggled with market share, is poised to recapture any margin leverage it has lost. And if the company's recent results serve as indication, investors who've been waiting patiently on the sidelines for this stock to fall down to fair value are going to be very disappointed.

Unlike at any point during this past fiscal year, Nike's first-quarter results made me wonder "What China problem?" This is the same question that rivals like Under Armour ( UA) and Adidas ( ADDYY) are asking today since they could never truly capitalize on Nike's slowdown. While Nike hasn't completely solved the economic headwinds in China, management has been working hard not only to reduce the company's inventory, but also adjust to the new buying trends of Chinese consumers.

In that regard, given the 38% growth in net income, which beat Street estimates by 8 cents a share, it's safe to say that Nike's management continues to pull all of the right strings. Revenue, meanwhile, advanced 8% year over year, helped by robust growth in North America. For that matter, except for China, where revenue declined 3% (excluding currency impacts), Nike saw growth in every other region.

As an indicator of the company's strong brand, Nike's future orders, which represents something like a backlog of sales commitments, rose 8%, compared with growth of 6% in the year-ago quarter. Just as impressive, and perhaps more so, there was a 3% growth in Chinese future orders.

Now, I do realize that I've beaten the China drum to a certain extent here. In many respects, it's because that's precisely what management, and much of the media, have keyed on over the past fiscal year. Given the breadth of that region and the growth potential, China deserves the attention that it has gotten.

However, and as I've said on more than one occasions, there are other -- and perhaps more important - aspects of these results. That Nike produced 11% year-over-year growth in Western Europe, which -- as of now -- is a much bigger market than China, is equally impressive. Europe hasn't exactly been the most stable of economies.

What's more, lost in all of the China excitement, after selling off unprofitable businesses like Umbro, management was able to maintain its lead not only with continued innovation, but also a re-energized focus on its core brand. Likewise, management deserves credit for deciding against the idea of offering more discounts, while also coming up with strategic costs reductions of raw materials. Because of this, Nike was able to grow margins by more than 1%.

As great as these results were, I still believe that Nike left some growth on the field. I've made this point once before and I'll say it again here; I think there's a point where Nike's management may have gotten complacent. I say this because I believe the only reason Lululemon ( LULU) still exists today is because Nike allows them to. There's quite a bit of pressure Nike can unleash in the sportswear market if this was an area it wanted to conquer.

That Lululemon is growing 3 times faster than Nike shouldn't be understated. Now that China has begun to stabilize, I believe now may be as good of a time as any for Nike to stunt some of that growth and get on the attack. For now, though, Nike has proven why it belongs among the beloved iconic brands like McDonald's ( MCD) and CoCa-Cola ( KO).

With continued cash-flow growth and economic improvements in China and other emerging markets, I don't see anything that's going to get in the way of this stock from reaching $85 to $90 per share over the next 12 months.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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