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Tickers in this Article: NKE, FINL, FL, ADDYY
Two big players in the athletic retailing industry announced earnings on Thursday, with one coming in as the clear winner and the other coming up disappointingly short. Nike (NYSE:NKE) announced first-quarter earnings after the bell and wowed onlookers with their performance, while The Finish Line (Nasdaq:FINL), which also released earnings after close, came up with a dud.

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Nike Earnings
Nike kept the pedal to the metal with a surprise 9% increase in earnings in Q1, reporting net income of $559 million ($1.14 per share) compared to $513 million ($1.04 per share) in 2009. Analysts had been expecting EPS of $1.01 for the quarter. Sales also increased relative to last year by close to 8% to $5.18 billion.

The key reason for Nike's increased profitability was its increased gross margin, which rose to 47% from 46.1%, which management attributed to less discounts and increased profitability in online sales. Even the subsidiaries got into the action with Cole Haan and Converse among others contributing an additional 16% to revenues. The news sent investors into a frenzy as shares traded up 5% after-hours, resulting in a new all-time high of $81.59.

What's more, Nike gave investors some promise for the future as future worldwide orders were up 10%, and up an even higher 15% domestically. Sales worldwide excluding currency fluctuations rose across the globe, except for Japan, with an astounding 24% growth rate in emerging markets. Nike's presence at this past summer's World Cup, going head-to-head with rival Adidas (OTC:ADDYY), may well have played a major part in their emerging market growth. Management was quick to point out that the near-term future is still a bit uncertain, with so much uncertainty in the capital markets paired with rising cotton, labor and oil costs possibly denting margins. All said however, Nike has gotten off to a blazing start in their five-year plan to increase global revenues by 40%.

Finish Line Earnings
On the other side of the ledger, Indianapolis-based retailer The Finish Line disappointed many a shareholder coming in with EPS of $0.31, below the $0.35 analysts were expecting. Although The Finish Line reversed last year's loss of $0.02 per share (including a $0.23/share loss from unloading Man Alive), the street had high hopes for the retailer. In fact according to the Associated Press, going into earnings, 9 of 12 analysts who cover the stock had buy rating or higher; it's not that they're mad, they're just disappointed.

The company's shares were pounded after hours, giving up over 11% on the miss. Many had hoped that The Finish Line would be able to take advantage of the strong growth prospects of Nike (ironically) and parlay that into big earnings, however as we can clearly see that was not the case. CFO Ed Wilhelm said that Finish Line entered Q2 with a very lean inventory on the heels of a strong Q1, and they were unable to bring in hot items until early August.

To add insult to injury, rival Foot Locker (NYSE:FL) reported surprisingly strong earnings in August, fuelled by strong margins and increased demand in the toning shoe market. While The Finish Line does not see much changing in the short-term from their initial analysis of the market place, management did state that they were optimistic about the second half of their fiscal year and the impending holiday shopping season. Let's hope they have learned their lesson and keep a higher inventory going into Thanksgiving.

The Bottom Line
With Nike having such a banner quarter it's disappointing that The Finish Line wasn't able to piggy-back their results and translate it into the sales analysts had been expecting. And it won't get any easier, as it appears that almost everyone is expecting choppy waters in the last quarter, keep an eye on consumer confidence numbers heading into the holidays as those may give us the clearest picture of what to expect in retail for the remainder of the year. (To learn more, check out Analyzing Retail Stocks.)

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