Macro Wrap – $NKE, Just Do It

by Enis March 22, 2013 7:55 am • Commentary

After detailing some of the global economic weakness shown by CAT and FDX this week, NKE reminded us that there are some bright spots as well.  The stock is trading up almost 8% in the pre-market after beating earnings and revenues.  Some highlights from the earnings release:

NIKE Brand revenues rose 10 percent, with growth in all geographies except Greater China and Japan and in all key categories except Sportswear and Action Sports.

Gross Margin benefitted from the combination of pricing actions and easing material costs, which more than offset higher labor costs.  This benefit was partially offset by higher discounts, particularly in Greater China as the Company continues work to manage marketplace inventory.  Additionally gross margin was impacted by unfavorable changes in foreign exchange rates and a shift in the mix of the Company’s revenues to lower margin geographies.

Futures orders for Mar to July 2013 were also strong, up 7% vs. 4% expected.

Overall, a strong performance from the apparel giant.  A few trends to note:

  1. North American consumer strength is in stark contrast to Chinese weakness.  This is a flip flop from 3 years ago, when Chinese demand was carrying global growth, and N. American demand was in the doldrums.  
  2. Easing material costs are a direct result of low Chinese demand, which is hurting companies in the materials sector (like CAT), but helping consumer names like NKE
  3. While the dollar only had a slight impact in the quarter, its recent strength could pose problems for earnings estimates of large U.S. multinationals going forward.

The company reports so far point to a continued dichotomy between strong American demand and weak global demand.  Price action has begun to reflect that as well, as the materials sector is the worst performer this week, down 2.5%.  As I mentioned 2 weeks ago, it’s probably long overdue.