Analysts Cheer Nike

Analysts are upbeat on Nike Inc. and called its full-year guidance conservative.

“We continue to see upside from improvement in international markets, especially China, growth around large sporting events and accelerated innovation,” said Citi analyst Kate McShane.

Christopher Svezia, analyst at Susquehanna Financial, agreed: “The outlook comes in a touch light. The future clearly remains bright for Nike, and there is likely upside to guidance.”

Speaking on a conference call to analysts on Thursday, Nike Brand President Charlie Denson called out the North American business and running as standout areas in the firm’s fourth-quarter performance, dubbing them MVPs in the portfolio.

“For the second year in a row, both running footwear and apparel grew in every single geography, and that momentum continues as we head into fiscal year 2014 with futures growing at a double-digit rate,” he said. “And then there’s basketball, [which I’d call] a co-MVP.”

But, Denson added, “The MVP for the quarter and the year really has to be North America.”

North America revenues crossed the $10 billion mark for the first time in 2013, the executive said, advancing 18 percent to $10.4 billion. Operating income grew 25 percent while inventory rose 13 percent.

“At Nike, when profits grow faster than revenue and revenue grows faster than inventory, we call that the financial Triple Crown. And for fiscal 2013, most key categories grew at a double-digit rate, as did footwear, apparel and equipment,” added Denson.

The emerging markets are fast approaching $4 billion in annual sales. Denson said, “We see this [segment] continuing to supply a strong growth story. One of the biggest contributing factors will be the energy coming out of Brazil with the World Cup followed by the Rio Olympics.”

Denson, along with Nike Inc. President and CEO Mark Parker, spent some time on the call addressing his retirement on July 1 and the associated management changes that were announced recently.

“People have asked me, why would I retire? Well, I guess the easiest way to answer that is because I can. But honestly, it’s a good time to focus on a different path forward for me and my family, and the time is great for this type of transition,” said Denson. “The brand is stronger than it’s ever been, financially and strategically. The company is in good hands with Mark [Parker] and the new leadership is incredibly talented and focused and really aligned with where Nike is headed. And we’ve done a good job building our bench for the long term.”

Parker said, “We spend a lot of time developing our leadership talent and that’s something that never stops. It allows us to adapt and evolve our competitive offense, and that’s what you can expect as this team takes Nike into the future.”

In the three months ended May 31, net income jumped 21.7 percent to $668 million, or 73 cents a diluted share, from $549 million, or 59 cents. Excluding discontinued operations such as the divested Cole Haan and Umbro brands, adjusted earnings per share came in at 76 cents, 2 cents above the average mark expected by analysts.

Revenues grew 7.4 percent, to $6.7 billion, from $6.24 billion a year ago, while gross margin increased 110 basis points to 43.9 percent of revenues. Analysts expected slightly lower revenues of about $6.64 billion.

For the full year, net income rose 11.8 percent to $2.49 billion, or $2.71 a diluted share, while revenues improved 8.5 percent to $25.31 billion.

Nike shares were trading 2.7 percent higher on Friday, at around $64.03 a share.

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