Nike Inc (NYSE:NKE) Is a Stock to Buy


Shareholders of Nike (NYSE: NKE) could once again celebrate a good earnings report as the company beat revenue by $0.0493 or 7.69%. Even further, they declared a very shareholder friendly buyback program. The market quickly responded to the positive report and Nike’s stock rallied. Here’s what investors should notice from the latest report.

It’s quite amazing that Nike, being the largest footwear and apparel company in the world, is able to grow as much as it does. When looking at Nike’s pipeline, we see that Nike’s business is divided into 3 segments. Footwear, which accounts for 65% of the revenue and grows at a 2% constant currency basis. Apparel, which accounts for 31% of revenue and is the most promising segment in Nike’s pipeline. It grows at a 7% constant currency basis and the future looks bright. Nike’s last segment is equipment and only accounts for 5% of the total revenue.

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Highlights from Nike’s Fiscal 2018 Fourth Quarter

Nike’s 2018 Q4 showed that revenue increased by 13% to $9.8 billion driven by strong double-digit revenue in international markets. It was a strong combination that pleased investors. Strong revenue growth and gross margin expansion which was up due to higher average selling prices. Include the lowered tax rate and makes sense that the share price jumped.

Mike Parker, CEO of Nike commented on the quarter by saying: “Our new innovation is winning with consumers, driving significant momentum in our international geographies and a return to growth in North America. Fueled by a complete digital transformation of our company end-to-end, this year set the foundation for Nike’s next wave of long-term, sustainable growth and profitability.”

A $12 billion share repurchase program

One of the greatest reasons for the increased share price is the new share repurchase programming stating approved by the board of directors. Now, Nike can start it’s $12 billion repurchase program and that’s something shareholders should be very happy about.

Share repurchases is better than dividend payments

A very common mistake done by investors is to think that it’s better to get a dividend payment than for management to buy their own stocks. The dividend income might be a reasonable argument for retirees living of the dividend income. But, for any other investor, looking for the highest possible total return, share repurchasing should be favored.

Owning shares in a company means you are entitled to a certain amount of the company’s profit. A share dilution means that the total amount of shares is less. This means that you are entitled to a larger part of the firms profit. However, that’s not the main benefit.

The great thing about share repurchase is that you don’t pay any taxes and in so, save the money you would have had to pay when you received the dividend payment. That’s why any investor with a long-term mindset should favor a strong share repurchase program over dividends payments. You get a higher part of the firms profit and you don’t pay taxes. The best of both worlds, and that’s why Nike stock rallied after the announcement and is currently hovering at about $77 per share, 7% above its pre-earnings price.

Author does not have investment in stock discussed in this article. 

Stockles is a nordic investor focusing on being a long-time holder of high quality companies. He uses dividend growth investment as his strategy, and he also runs the blog: where you can find his portfolio and updated dividend income.