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.
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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.)

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