As I’m writing this, shares of Nike Inc. (NKE) are rising after the company announced that it was more profitable than expected in the second quarter.
According to management, Nike’s shoes and clothing continued to be in hot demand in North America. The company also benefitted from a lower effective tax rate and a lower average share count (thanks to its $12 billion share repurchase program). Last quarter, the world’s largest footwear maker saw a 4.1% year-on-year increase in total sales, and a 19.8% jump in profits. Nike turned a profit of $785 million, or $0.90 per share, on $7.69 billion in revenue.
This beat analysts’ earnings expectations; the consensus estimate was for $0.86 EPS, so Nike posted a 4.7% earnings surprise. At the same time, analysts were looking for $7.81 billion in revenue so Nike posted a 2.1% sales miss.
Even so, investors took the sales miss in stride. Last quarter, Nike also repurchased $652 million of its shares as part of its aggressive stock buyback program. Nike also announced that worldwide futures orders for Nike footwear and apparel through April 2016 were 15% higher than a year ago.
For those of you who currently hold NKE shares, there’s no doubt that the company is on solid footing for 2016. NKE currently earns an A-rating in Portfolio Grader, earning it a “Strong Buy” recommendation. For FY 2016, the analyst community expects Nike to grow sales by 7.2% and earnings by 16.5%. That’s excellent, considering that the industry as a whole is expected to see earnings fall 1.2% next year.
And for those of you who are interested, NKE also has a stock split coming up. Nike shares will split two-for-one after the close tomorrow, December 23. NKE shares will trade at the split-adjusted price on December 24.
All-in-all, this was an excellent report, and NKE remains a Strong Buy.