This week's earnings report from Nike (NYSE: NKE) confirmed one thing: consumer confidence is still very weak. As a major blue-chip global consumer stock, Nike's performance provides a great indication of overall spending trends worldwide. With company-wide revenue falling 12% to $4.8 billion in the first quarter, shoppers are clearly still out of shape.
IN PICTURES: How To Make Your First $1 Million

The Lean, Mean, Profit Machine
Fortunately, the sobering news stops there. Despite persistent unfavorable macro spending trends, Nike itself is financially fit. The company has been reorganizing its structure and maintaining tightly controlled inventory throughout the recession, allowing it to trample estimates quarter after quarter.

Through workforce reduction and operational streamlining initiatives, it shed 17% of its SG&A expense line. This resulted in flat earnings, despite the fact that it lost 100 basis points of gross margin and reported weak sales.

Since last year's first quarter, the balance sheet has grown stronger and now boasts $3.6 billion in cash - 40% more than in 2008. Inventory was reduced by 7% and long-term debt remains negligible.

Share repurchases continued throughout the quarter as management bought $15 million as part of its four-year plan to repurchase a total of $3 billion worth of shares. Thus, diluted earnings per share actually inched up 1%.

Scouting Out the Opponents
Aside from Adidas, Nike holds far more muscle power than its athletic apparel rivals. Columbia Sportswear (Nasdaq:COLM) was a hit years ago, but its brand is quickly fading. Crocs (Nasdaq:CROX) was a one-hit wonder and now remains an operational nightmare. And while Under Armour (NYSE:UA) and Lululemon (Nasdaq:LULU) may sport great domestic growth prospects, they are small niche plays that do not have the ability to continuously drive operational efficiency and withstand prolonged cutbacks in consumer spending.

Pulling Ahead of the Competition
Throughout the last decade, Nike has halved its waste output and recycles two-thirds of its scrap. The company has also pledged to reduce waste from its supply chain by 17%. In the long run, all of these costs savings will not only continue to fall to the bottom line, but will allow Nike to continue to invest in more promising growth markets.

With a globally recognizable brand, Nike clearly has an advantage over smaller up-and-coming rivals in the emerging markets arena. The company still generates 37.5% of its sales from the U.S. and thus it still has substantial room to further penetrate higher growth markets. It's no wonder, then, that analysts peg the company to grow 12% annually for the next five years; an impressive figure for such a behemoth.

Crossing the Finish Line
Selling at 16 times forward expected earnings, Nike is a solid consumer industry play for any portfolio. (For more, see Analyzing Retail Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  2. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  3. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  4. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  5. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  6. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  7. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  8. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  9. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  10. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  1. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!