Nike (NKE) knocked it out of the park to cap off its fiscal year, but the numbers should be looked at from a couple of perspectives. The first is from a broader macro standpoint, the second from a relative stock view.
First, some general numbers. Nike's running business was not the top performer for the company. Weird? Not really; the company is feeling the heat from several competitors, including Growth Seeker portfolio holding Under Armour (UA). Earnings came in at $0.98 a share compared to the $0.83 a share estimate, driven by strong sales in the basketball category (+21%), sportswear (+20%) and women's training (+16%).
On the other hand, sales in the running category, which also includes sales of related apparel, only rose 9%. The performance suggested that Nike continued to have some sales difficulties in its core, running sneaker business.
All in all, a fine quarter by Nike, which is what you should expect from a stock valued at almost 2x the market on a forward P/E multiple basis. However, here are the three stories that emanate from Nike's results.
1. The world is not ending.
Excluding currency, Nike's sales in China, Japan and Western Europe surged. Even including currency, the figure made me optimistic on how multinationals fared on sales during the second quarter. The reality is that Nike's results should remind us rational folk that headlines on Greece are just that, simply headlines designed to drive ad dollars and clicks on social media forums.
They are designed to keep folks glued to the second-by-second action, instead of investing that time into deeply understanding a company's development pipeline and global market for those products and services.
So while the world was apparently ending in the second quarter, amid fears of a Fed rate hike and Greece waving goodbye to the European Union, Nike's basketball sneakers sales in China remained on fire. Hey, believe it or not, basketball is of strong interest in China.
I think Nike's overseas results bode well for earnings pre-announcement season, and eventually, earnings season. Makes me also wonder if the pullback in transports is a buying opportunity -- I don't think FedEx's (FDX) soft quarter stemmed from weak revenue; it was more operational. And, seeing as this richly valued Nike stock reacted well to the performance, it's a tell that the market has some legs left. Sorry, Carl Icahn, I know you want to chase people out of the market via public appearances and tweets so you could swoop in at cheaper valuations. I suppose it's "don't hate the player, hate the game."
2. Under Armour will announce a strong quarter next month.
To me, Nike had a so-so quarter in running. I believe that bodes well for Under Armour, which has gained a nice chunk of share in the category. The company's new SpeedForm Gemini running shoe is affordable, priced below many Nike styles, and looks good. This product should be called out favorably by Finish Line on its earnings call this morning.
Second, I would have liked to see a bit more "wow" in Nike's North American apparel sales. Nothing too alarming here, but having followed Nike for a while, the sales growth numbers in the U.S. should have been hotter. I think they would have been, if not for the considerable inroads Under Armour is making in women's, men's and kids. My sense is that 2016 will bring more flagship stores from Under Armour, and more locations via a new partnership with Foot Locker's (FL) Champs division called "The Armoury."
3. Lululemon (LULU) may be overvalued here.
Honestly, I don't care about the company's recall of a jacket style with "dangerous" drawstrings. The recall is nothing like the black pants debacle from a couple years ago. This time around, it's just a one-day headline that's going to get play.
However, Nike had a great quarter in women's products -- the company has raised its game on fit and style. I think a sharper Nike in female apparel and accessories is bad news for Lululemon's shares moving forward. The market has bought into Lululemon's turnaround (so did I last year, loved the stock...up until now) and everything has to go right from here on out. Nike's sales suggest Lululemon will have a hard time regaining uninterrupted glory.