Nike is one of the few market moving names that will report earnings this week so I’m watching the stock actively after hours. When the earnings report hit the wires the stock immediately sold off 4%, but quickly rebounded as big buyers came into the name.
What’s confusing here is why the stock is jumping. They reported EPS of $1.04 vs estimates of $0.97 on sales of $4.8B vs expectations of $4.9B. So, the broader trend of EPS beats and revenue misses appears to be continuing into this quarter. But a closer look at the NKE quarter shows more weakness than expected.
Revenues fell 12% year over year and missed expectations. Gross margins fell year over year from 47.2% to 46.2% – a clear sign that revenues are deteriorating faster than Nike can keep up with. Costs fell substantially, but not enough to maintain margin expansion. An apples to apples look also shows a much lower tax rate and a lower share count. If you compare the earnings year over year on an apples to apples basis they actually added 4 cents to the bottom line via a lower tax rate and lower share count – neither of which are organic. No guidance was provided in the report. So, revenue miss, margins down, organic growth non-existent = stock jumps 6%. The bizarro market continues….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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