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Category: Stock Market and Nike Inc
Date: 25 September 2019 Stock Price: $91.73 We take a look at the latest financial results of Nike Inc. the sporting apparel and accessories group for the 1st quarter of their 2020 fiscal year. Has our stock target for them improved since our 4th quarter 2019 stock valuation of Nike?
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About Nike Inc.
NIKE, Inc., based near Beaverton, Oregon, is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiary brands include Converse, which designs, markets and distributes athletic lifestyle footwear, apparel and accessories; and Hurley, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories
Financial overview of Nike's latest results
Numbers highlighted in the earnings report:
Numbers we are interested in: (for the quarter):
Nike Brand Revenues:
So footwear sales for Nike makes up 64.6% of the group's revenues, with clothing apparel making up 30.9% of the groups revenues (as at the 1st quarter of Nike Inc. 2019 fiscal year).
- Revenues for NIKE, Inc. increased 7 percent to $10.7 billion, up 10 percent on a currency neutral basis.
- Revenues for the NIKE Brand were $10.1 billion, up 10 percent on a currency-neutral basis driven by growth across NIKE Direct and wholesale, key categories including Sportswear and the Jordan Brand, and continued growth across footwear and apparel.
- Revenues for Converse were $555 million, up 8 percent on a currency-neutral basis, mainly driven by double-digit growth in Asia and through digital globally, which was partially offset by declines in the U.S.
- Gross margin increased 150 basis points to 45.7 percent primarily due to higher average selling prices and margin expansion in NIKE Direct, partially offset by impacts from changes in foreign currency exchange rates and higher product costs.
- Selling and administrative expense increased 9 percent to $3.3 billion. Demand creation expense was $1.0 billion, up 6 percent primarily driven by higher advertising expenses and sports marketing investments. Operating overhead expense increased 10 percent to $2.3 billion driven by continued investments in transformational capabilities, particularly in NIKE Direct and global operations.
- The effective tax rate was 12.4 percent, compared to 14 percent for the same period last year, primarily due to discrete items which favorably impacted the quarter.
- Net income increased 25 percent to $1.4 billion driven primarily by strong revenue growth and gross margin expansion while diluted earnings per share increased 28 percent to $0.86 reflecting a 2 percent decline in the weighted average diluted common shares outstanding
Numbers we are interested in: (for the quarter):
- Revenues $ 10.66 billion (up 7% from $ 9.984 billion for the same quarter of the previous year)
- Cost of sales: $5.789 billion (up 4% from $5.551 billion for the same quarter of the previous year)
- Gross profit: $4.871 billion (up 11% from 4.397 billion for the same quarter of the previous year)
- Gross margin: 45.7% (up 150 basis points from 44.2% for the same quarter of the previous year)
- Net income: $1.367 billion (up 25% from $ 1.092 billion for the same quarter of the previous year)
- Diluted earnings per share: $0.86 (up 28% from $ 0.67 for the same quarter of the previous year)
- Diluted number of shares outstanding: 1.597 billion (down from 1.634 billion for the same quarter of the previous year)
- Dividends declared per common share: $ 0.22 (up 10% from $ 0.20 for the same quarter of the previous year)
- Dividend yield: 0.95%
- Cash and equivalents: $ 3.46 billion (up 5% from $ 3.282 billion for the same quarter of the previous year)
- Accounts receivable, ne:t $4.656 (up 8% from $4.330 billion for the same quarter of the previous year)
- Accounts receivable (money owed to the group) makes up 17.7% of their total assets
- Inventories: $5.835 billion (up 12% from $5.227 billion)
- Inventories makes up 22.2% of the group's total assets
- Shareholders’ equity: $9.2 billion
- Shareholders equity per share: $5.76
- Nike Inc is trading at 15.9 times its stockholders equity. This is outside the usual range of between 2 and 4 times what most companies tend to trade at
Nike Brand Revenues:
- Footwear $ 6.521 billion (up 8% from the same quarter of previous year)
- Apparel $3.121 billion (up 6% from the same quarter of previous year)
- Equipment: $448 million (up 8% from the same quarter of previous year)
- Total: $10.096 billion (up 7% from the same quarter of previous year)
So footwear sales for Nike makes up 64.6% of the group's revenues, with clothing apparel making up 30.9% of the groups revenues (as at the 1st quarter of Nike Inc. 2019 fiscal year).
Nike's management commentary on the results and earnings guidance
BEAVERTON, Ore., Sept. 24, 2019 - NIKE, Inc. (NYSE:NKE) today reported fiscal 2020 financial results for its first quarter ended August 31, 2019. Revenue increased to $10.7 billion in the first quarter, up 7 percent on a reported basis and up 10 percent on a currency-neutral basis*, driven by growth across all geographies. “Our strong start to FY20 highlighted the depth and balance of NIKE’s complete offense,” said Mark Parker, Chairman, President and CEO,
NIKE, Inc. “NIKE’s strong product innovation, combined with our industry-leading digital experiences, continue to deepen our consumer relationships around the world.” Diluted earnings per share for the quarter was $0.86, an increase of 28 percent driven primarily by strong revenue growth and gross margin expansion. “Our targeted strategic investments are accelerating NIKE’s digital transformation and extending our competitive advantage, ” said Andy Campion, Executive Vice President and Chief Financial Officer, NIKE, Inc. “Even amidst the increasingly volatile macroeconomic and geopolitical environment, we expect our unrelenting focus on better serving the consumer to continue fueling strong, broad-based growth across our global portfolio.
Share Repurchases
During the first quarter, NIKE, Inc. repurchased 11.9 million shares for approximately $995 million as part of the four-year, $15 billion program approved by the Board of Directors in June 2018. As of August 31, 2019, a total of 23.5 million shares had been repurchased under this program for approximately $2.0 billion.
NIKE, Inc. “NIKE’s strong product innovation, combined with our industry-leading digital experiences, continue to deepen our consumer relationships around the world.” Diluted earnings per share for the quarter was $0.86, an increase of 28 percent driven primarily by strong revenue growth and gross margin expansion. “Our targeted strategic investments are accelerating NIKE’s digital transformation and extending our competitive advantage, ” said Andy Campion, Executive Vice President and Chief Financial Officer, NIKE, Inc. “Even amidst the increasingly volatile macroeconomic and geopolitical environment, we expect our unrelenting focus on better serving the consumer to continue fueling strong, broad-based growth across our global portfolio.
Share Repurchases
During the first quarter, NIKE, Inc. repurchased 11.9 million shares for approximately $995 million as part of the four-year, $15 billion program approved by the Board of Directors in June 2018. As of August 31, 2019, a total of 23.5 million shares had been repurchased under this program for approximately $2.0 billion.
Nike Inc (NYSE: NKE) stock price history
The image below, obtained from Google, shows the stock price history of Nike Inc (NYSE: NKE) for the last 5 years. And its been a gradual upward trend for the group's stock price with it trading at about $48 5 years ago, its currently trading at around $91.74 a share. That's a strong return of 91.1% over the last 5 years. The stock of Nike is also trading at a lot closer to its 52 weeks high than it is to its 52 week low, which to us is a clear sign that the short term momentum and sentiment towards Nike stock is very positive.
Nike Inc's (NYSE: NKE) stock valuation
So what do we value one of the worlds biggest clothing and apparel brands stock at? Based on Nike's latest financial results for the first quarter of their 2020 fiscal year what is our target price of Nike Inc. stock? For their 4th quarter 2019 fiscal year we valued Nike Inc. stock at $61.50 a share. Has our valuation improved based on their latest results? Based on their latest earnings report our valuation models provide a target price for Nike Inc of $65.70. We therefore believe Nike Inc stock is currently overvalued and we would not recommend long term fundamental and value investors buy into the stock at its current price. We usually suggest looking to buy at least 10% below our target price which in this case is $65.70. We therefore believe Nike Inc stock at $59.10 or below is a good entry point into the world famous apparel group