Daily Gains Letter

How NIKE Is Defying the Odds as a Global Brand

By for Daily Gains Letter |


Sporting goods store Cabela’s Incorporated (NYSE/CAB) is up 20 points on the stock market since the beginning of the year.

In the fourth quarter of 2012, the company reported that comparable store sales grew 12%. Fourth-quarter revenues grew 15% to $1.1 billion, while earnings rose a solid 20% to $89.9 million.

The company’s first quarter of 2013 should be very good. Wall Street analysts have been increasing the company’s earnings estimates across the board for this year and next.

Both Wal-Mart Stores, Inc. (NYSE/WMT) and Target Corporation (NYSE/TGT) have been exceptionally strong performers on the stock market. Both of these positions are trading at all-time record highs.

For its fiscal 2013 third quarter, ended February 28, 2013, NIKE, Inc. (NYSE/NKE) reported exceptionally good results for such a mature global brand.

According to the company, its third-quarter sales grew nine percent to $6.2 billion, with growth experienced in all geographies except Greater China and Japan.

NIKE’s gross margin improved 30 basis points to 44.2%, while earnings rose 16% to $662 million and earnings per share grew 20% to $0.73. The company’s stock chart is below:

Chart courtesy of www.StockCharts.com

NIKE has done an exceptional job on the stock market and operationally for such an old brand name. Wall Street earnings estimates are increasing, and NIKE should report another great quarter in June.

Specific brands in the retail universe are doing great. But weather is a big factor in retail merchandising, and this past winner likely kept a lot of shoppers indoors. First-quarter same-store sales could be underwhelming.

There is continued momentum available in the stock market. Earnings results don’t need to outperform; big investors want to see revenue growth.

Still, a great deal of caution is appropriate in this kind of stock market—a market at all-time highs with global investment risks unabated.

One index that still needs to play catch-up, if you think of it that way, is the NASDAQ Composite index. This index is about 1,200 points below its all-time record high set in 2000. But if the stock market really is in a bull market, 4,000 on the NASDAQ Composite is not unrealistic (it’s currently at 3,300).

With current corporate earnings being mediocre, the bullish case suggests that any acceleration in the U.S. economy will immediately translate into better earnings. The stock market is now, in a sense, betting on an earnings acceleration in the fourth quarter of this year.

Near-term earnings reports are likely to be all over the map. The stock market has been very positive in anticipation of these results, but earnings confirmation from technology stocks would go a long way, in my view, in making the bullish case.

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