Kokomo, IN – (StockNewsDesk) – 09/25/2014 — Nike’s stock was up a little more than 5% in after hours, after reporting its first quarter fiscal year 2015 earnings, which handily beat Wall Street expectations on the top and bottom line.
Record Sales and Earnings
The Oregon based footwear company recorded $7.98 billion in first quarter sales, beating the consensus by nearly $180 million. More impressively, sales jumped 15% from the previous year’s quarter. The company continues to defy skeptics, remaining a premium global brand that continues to grow rapidly, especially given its size.
The company beat earning expectations because of a combination of strong demand, increasing margins, and lower taxes. Net income grew 23% from the previous year’s quarter, coming in at $1.09 per share, exceeding estimates of $0.88 per share. The company could deliver an earnings beat despite increased one-time marketing costs because of the World Cup. Nike sponsored teams like Portugal, USA, England and Spain, including top talent, like Cristiano Ronaldo, Iniesta, Wayne Rooney and Jr. Neymar. This partly explains the strong after hour reaction, as numbers should be even better in the future, as cost of sales will only decline.
Almost all of Nike’s revenue can be credited to the Nike brand. The only other significant contributor was the Converse brand. Nike does not provide any sort of forward outlook, but it did state that future orders are higher than normal.
Despite being an established company, Nike has preserved its rapid growth pace because of the overseas market, defying a weak global economy. While future sales for the company were about 12% higher than the previous year’s quarter, overseas the figure was close to 20%. With more than a billion people expected to become middle-class consumers in the next 20 years, Nike’s potential customer base will keep expanding.
Another boost for Nike has been the decline in commodities, which lowers expenses, providing a boost to the bottom line. Already, energy costs and raw material prices, such as cotton, latex, etc., are lower than the previous quarter. Emerging markets, in general, is where the growth is for Nike, and the company has positioned itself to take advantage of their citizen’s growing purchasing power. About 35% of sales came from this region and, within five years, Nike estimates it will be responsible for half the company’s sales.
Nike’s stock has been one of the best stocks to own in its history, bar none. It IPO’d at a split adjusted price of 33 cents in 1981 and now trades at $85, a gain of more than 25,000%. This also does not include the dividends the company has been paying for the last 27 years.
Its stock has been particularly explosive in the last 5 years as it has climbed from a low of 17 to its current high at $85, a gain of 400%. The stock hit a new all-time high of $82 early in September but then mildly pulled back to $79, as the overall market weakened. The earnings beat looks set to propel the stock to new highs. This price action in a weak market is a good sign for the stock’s future prospects.