Exclusive Analysis for the Discerning Investor
Ralph Lauren posted strong fiscal fourth-quarter results and doubled its dividend. However, the shares are fairly valued, in our opinion, and its annual yield is not yet large enough to get us excited.
Dick’s Sporting Goods posted strong first-quarter results, but the potential impact from encroaching online competition remains unclear. We think Nike is a much better idea for investors looking to gain exposure to the athletic retail space.
Under Armour (UA) reported strong first-quarter results that were in-line with our expectations. On the heels of the strong report, we’ve reassessed our discounted cash-flow model and are now forecasting more optimistic future assumptions. The high end of our fair value range is now $78 per share, as we expect the firm to raise prices on its core segment products and leverage marketing expenses better than we had previously assumed. We initially extrapolated Nike’s (NKE) slightly slower apparel growth into the view that Under Armour might struggle disproportionately in the first quarter of 2012, given the unseasonably mild weather across much of the US. However, to our surprise, sales increased 23% versus the first quarter a year ago, and net … Read more
We may sound like a broken record, but Nike (NKE) reported another strong quarter Thursday. In its fiscal third quarter, sales grew 15% to $5.8 billion from $5 billion, and earnings per share grew 11% to $1.20 from $1.08 in the year-ago quarter. Both the top line and bottom line came in better than consensus estimates, even with the firm’s gross margin falling 200 basis points from a year ago. All things considered, performance was about what we had expected, and our fair value estimate for Nike remains unchanged. North American Future Orders were up 22% As Nike Brand president Charlie Denson said on its fiscal third-quarter conference call, “If I hadn’t been working here for the last 33 years, … Read more
The news for Deckers (DECK) hasn’t been great over the past several months. The slide in its share price began when the Street became more cautious on its fundamentals in December, and it recently culminated with flat earnings growth guidance for its fiscal year 2012 due primarily to higher input costs. Though the raw expense of boot materials (sheepskin) may weigh on the company’s fundamentals in the near term, we think the market has generally overreacted to the these headwinds. Regardless of how fashionable men think the company’s flagship Ugg boots are (often nicknamed “Ugg-ly), we think they’re among the most dominant women’s winter footwear brands, along with Sorel (COLM) and North Face (VFC). And why wouldn’t they be? Other … Read more
When it comes to iconic American brands, Nike (NKE) stands side-by-side with Coca-Cola (KO), McDonald’s (MCD) and Apple (AAPL). Like other iconic American brands, Nike has rebounded strongly from its 2009 lows, with shares up over 11% this year alone. Though we think shares are fairly valued, we still like Nike much more than Under Armour (UA) on a fundamental basis. Surprisingly, Nike is taking share in apparel. Under Armour might pride itself on its innovation and first-mover advantage in the compression and weather-appropriate layer materials. However, we think Nike is taking share thanks to a more fashionable and affordable line up. Our channel checks at Dick’s Sporting Goods (DKS), which just reported a spectacular quarter, suggest that not only are Nike racks emptier … Read more
Nike (NKE) posted fiscal second-quarter results, which, by most measures, was in line with our expectations. Top line revenue grew 18%, thanks to both slightly higher prices and impressive unit growth. North America, easily Nike’s biggest market, saw footwear soar 22% and apparel rise by 23%, both positive upside surprises, in our view. We also saw strength in China (up 35%) and Emerging Markets (up 27%). Though sales in Europe have languished over the past several quarters, Western Europe didn’t experience a large downturn. However, management stated its business isn’t a great gauge of the European consumer due to Euro 2012 and the London Olympics scheduled for the next year. We are maintaining our fair value estimate for Nike at … Read more
By all accounts, Dick’s Sporting Goods (DKS) reported a strong third quarter. Same store sales were up 4.1%, earnings increased to $0.33 a share on a GAAP basis, up nearly 170% year-over-year. Additionally, management raised guidance to $2.01-$2.03 per share from $1.94-$1.96, although we don’t think the guidance raise is very surprising. Gross margins were also up about 125 basis points, which is likely to continue into the fourth quarter. We are maintaining our $30 fair value estimate. Dick’s continues to ride tailwinds in footwear and athletic apparel to higher revenue growth. The company also opened 19 new stores and posted strong comps in its burgeoning e-commerce business (16.8%). However, Golf Galaxy continues to post lackluster results as it reported … Read more
Nike (NKE) reported an absolutely spectacular first quarter that beat what we thought were aggressive estimates. Due to increased expectations, we’ve upped our fair value estimate to $97 per share (was $95 previously). North American results: a huge upside surprise Considering many pundits seem to think the United States is in/heading into/might head into a recession, Nike posted wonderful North American results. Apparel was up 23%, reinforcing our thesis that sports apparel is a tailwind industry. This “mature” industry was up 15% currency neutral, which was even greater than 9% currency neutral growth in China. As CEO Mark Parker said at Nike’s Analyst Day, “Nike is a growth company.” Though commentary was limited, Nike also seems very excited about its upcoming NFL license. With … Read more
Nike looks like an attractive investment candidate in a falling market Nike is one of the most recognizable brands on earth. With sales of over $20 billion in fiscal year 2011, it’s easily the largest athletic retailer on the planet. After growing revenues 9% in a tough retail environment, and on an enormous base of $19 billion, we think Nike is a best-in-class company, and we are initiating coverage with a fair value of $95. This implies a multiple of about 18x 2012 earnings, and earnings per share growth of over 18%. Fourth quarter profit reveals operational strength It’s not often we get excited when a company has its gross margin fall over 300 basis points in a single quarter, … Read more