NKE: Just Plain Awful

Nike (NKE) reported its FYQ4 results yesterday and missed the Street consensus by a whopping $0.20. Essentially, it was a total wash and Nike put up one awful print. This is a company that has continued to grow quarter-over-quarter for the past few years up until 2012. Gross margins were off management’s projections for the third quarter in a row. Plain and simple: Nike messed up and management knows it simply cannot screw up next quarter. The board will not allow it.

NKE: Just Plain Awful - NKE 1yr

To put it in perspective, the company had several factors affecting the outcome of its earnings report. Higher R&D costs, a negative customs ruling for four years of imports and gross margins hovering at a 2004 level. And consistent with our macro outlook, growth in China slowed to abysmally low levels, but it can be argued that was to be expected. Furthermore, management’s tone on the conference call displayed a laid back attitude that does not bode well for a company posting a miss like Nike did. In short, it’s time to hunker down and focus.

Despite yesterday’s horrid earnings report, we do remain bullish on the stock over the long-term. Capital expenditures are leveling off, the new NFL contract will grow into a half-a-billion dollar business in about two years, and the sale of Cole Haan and Umbro (both of which Nike had no business owning) will generate cash to play with.