- By Harsh Jain
After disappointing shareholders in 2016, Nike Inc. (NKE) has finally managed to regain its lost momentum this year. Shares of the athletic footwear and apparel giant are up almost 25% year to date, whereas its chief rival Under Armour (UA) (UAA) continues facing headwinds moving forward. Shares of Under Armour are down more than 45% year to date.
Nike reported healthy second-quarter results on December 21st after the market close. For the quarter, the company shared earnings per share of 46 cents, beating the analyst"s estimate by 6 cents. On the other hand, its revenue came in at $8.55 billion, again surpassing the consensus by $150 million. Also, that figure represents a surge of 4.5% year over year.
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The intrinsic value of NKE
The company"s top-line growth was driven primarily by strong growth in international markets, but a decline in gross margins pointed out severe price competition in North America, its largest market. The weak demand for its footwear and sports accessories in North America resulted in a 5% revenue decline from the market.
That decline, however, was more than offset by improved demand from European regions and Greater China as the revenue from these areas surged 19% and 16%, respectively. The impressive growth in China is a great plus for Nike as the addressable Chinese market is projected to grow at a steady rate in the coming years. The footwear and apparel maker"s robust presence in the international markets opens the door for enormous growth in emerging markets.
Apart from these, the company"s gross margins plunged 120 basis points in the prior quarter mainly due to higher raw materials and production costs as well as unfavorable foreign currency exchange (Forex) rates. The footwear maker"s selling, general, and administrative (SG&A) expense increased slightly more than 10% due to higher marketing as well as advertising costs.
The company is primarily focusing on product innovation that enhances performance while also substantially decreasing the cost of materials via the reduction of waste. It is also increasing its level of automation to improve productivity and to lessen its dependence on labors.
Although Nike currently faces several headwinds, it still has enormous growth potential. The company is putting in a lot of efforts to expand itself in new channels, such as online sales. The revenue generated from its direct-to-consumer business increased over $9 billion in fiscal year 2017.