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. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Fundamental Analysis

    Is a U.S. Industrial Recession on the Horizon in 2016?

    Find out why the industrial economy may be teetering on an industrial recession and what could prevent it from going over the cliff.
  4. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  5. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  6. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  7. Fundamental Analysis

    Gloom and Doom for Global Markets in 2016?

    Learn about the volatility in global markets during the beginning of 2016. See why famous investors are saying some economies could see recessions.
  8. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  9. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  10. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Trading Center