Friday, September 26, 2014

Nike: $8 Billion in Revenue, 1st Quarter 2015


One way in which I keep track of the stocks in my portfolio is by reading their respective quarterly and annual reports when they come out. This keeps me informed about how the company is doing financially as well as plans for the future or any new projects the company may be working on and/or results of said projects, as well as general information pertaining to operations and the business as a whole.

Note to my beginner investors: You can find press releases, annual reports, quarterly reports and pretty much all financial statements of any publicly traded company by clicking on the "investor relations"  or "investors" tab which you can usually find on the main webpage of said company. A company like Nike actually has a site called nikeinc.com which is separate from the nike.com website. The Nike Inc. site is for investors but most company's will have the investors link on their regular website. If you cant find said link, you can also go to the SEC- Edgar website for everything and anything a public company is required to disburse by law.

I've felt confident about Nike (nyse: NKE) for a very long time but did not actually buy shares until January of this year. I presented it as a re-recommendation during the program in which I participated this summer. You can see the slides of that presentation here. The point of my presentation was to reinforce the fact that this company remains strong and still has a whole lot of room for growth. Needless to say, the recent reports did not disappoint.

Nike reported first quarter earnings for 2015 yesterday afternoon and in a nutshell, exceeded analyst expectations across the board. Here are some of the major highlights of the conference call:

1. Revenues for Nike, Inc. were up 15% year over year for a nice profit of $8 Billion (The Nike Inc. includes both, Nike brand and Converse. Revenue for the Nike brand alone were $7.4 Billion, up 15% while converse made $575 million, up 16%). Net income increased 23% year over year to $962 million.

2. Gross margin increased to a whooping 46.6%. Part of this increase was attributed to higher prices in the products sold, higher margins, as well as the demand for said products. Also, continued growth in their DTC business (DTC= Direct to consumer business where Nike sells to the consumer from their website rather than simply serving as a wholesaler to stores. This is an area where Nike continues to show strong and promising advancement).

3. Selling and administrative expenses which include their "demand creation" expense did increase 21% to $2.5 billion. Within that amount, demand creation alone was up 23% to $897 million in comparison to same quarter last year. The demand creation is Nike's "fancy" and quite clever name for marketing expenditures. If you were watching the world cup earlier this year, its likely that you saw Nike everywhere. Nike CEO referred to said expense as "marketing investments in the world cup". And yeah, looks like the investment paid off.

Feel free to read the entire conference call transcript here. Or, for a quick read, you can check out the press release.

I know some of you have fears of competition and by that I am specifically referring to Under Armour (nyse:UA). I totally agree that this company is a nice competitor for Nike and they've done pretty well for themselves. However, in all honesty, the have yet to reach the level that a veteran like Nike Inc. has reached. Which is not to say they may reach it eventually. In that case, who is to say there is no room at the top for two excellent companies. In the meantime, I'll remain one happy Nike shareholder.

What are your thoughts on companies Nike and Under Armour?

Thank you for reading, and cheers to profits!

Mabel