Tickers in this Article: NKE, ADDYY.PK, FL, FINL, DKS
When is high-quality merchandise not so attractive? When you have to pay up to get it.

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I am a fierce bargain hound, so much so that if I am routinely shopping at your store, you may just have a problem. But that innate cheapness serves me well in the stock market and I think investors who do not already own Nike (NYSE:NKE) should put this one on their "buy when it gets cheaper" watch list.

The Quarter That Was
Nike had a lukewarm quarter. Revenue was a little light relative to analyst hopes, but still grew about 8% to just over $5 billion. Within that number, footwear sales climbed more than 6% (to about $2.7 billion), while apparel jumped up 13% to $1.3 billion.

Below the revenue line, the picture was likewise mixed. Gross margins improved nicely (by about 400 basis points), but operating expenses were less positive. I grant that some of that bump was sales and marketing spending relating to the World Cup (which is an excellent global showcase for a company like Nike), but higher spending on company-owned stores concerns me a bit. All in all, though, the company did manage to beat its assigned target by a penny on the EPS line.

Looking Ahead
Judging by the tenor of the commentary coming out of Wednesday night's release, it seems like folks are not thrilled about the company's guidance. Futures orders growth of 10% was not bad, but the company did warn that currency effects (especially in Europe) could be an issue. That is all well and good, but I think there could also be demand concerns in Europe - depending upon just how deeply these austerity measures bite in countries like Greece, France, the U.K., and Germany, domestic demand could become troublesome. (For related reading, check out Why We Splurge When Times Are Good.)

As has often been the case, I expect some investors to continue to focus on the "China opportunity" for Nike. Chinese sales were up an impressive 12% this quarter, but still comprise less than 10% of the company's business. While Nike is doing well in China, rivals like Adidas (Nasdaq:ADDYY.PK) are not conceding just yet, and the company also needs to keep an eye on homegrown rivals like Anta, China Dongxiang, and Li Ning.

Bide Your Time
I think Nike is an exceptionally well-run company, and I would be happy to own it as part of a diversified blue-chip portfolio. After all, there are not too many companies with exceptional returns on capital, a large revenue base and large under-penetrated overseas markets that are not simultaneously reviled for their corporate practices. Better still, so important is the Nike brand that the company can call the shots with retailers like Foot Locker (NYSE:FL), Finish Line (Nasdaq:FINL) and Dick's (NYSE:DKS), and that is certainly good for margins and product positioning. (To learn more about investing in this field, check out Analyzing Retail Stocks.)

Bottom Line
If you really want to play the sportswear market today, I would be more likely to recommend looking at Adidas or Li Ning at today's prices. That is no slight on Nike, but just a recognition that the market is fully aware of Nike's quality and it is difficult to make much money when the Street is already wide awake to what a company is doing.

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