Ralph Lauren Corp (RL), NIKE, Inc. (NKE): Just did it!

The America and China story

North America, yet again, proves to be the gold mine for Nike as it outperformed expectations by providing revenue growth of 18% (future orders grew by 11%). Despite the American market looking mature, Nike believes that there are growth opportunities in running, basketball and men’s training categories. Increasing relevance in North America and the foreseeable growth opportunities have not turned Nike’s attention from the emerging markets, and that’s been proved by the Chinese turnaround story.

Among the emerging markets, China is precious to NIKE, Inc. (NYSE:NKE) as high price tags and low shipping costs turn it into a high-margin market. However, Nike was suffering in China, as future orders decreased during the first two quarters of the fiscal year. Moreover, Nike had been stuck with excess inventory in China and was finding it difficult to tackle competition by local brands. The company saw a turnaround in this quarter as future orders rose by 4%, one of the reasons being improved merchandising assortments. Nike, however, believes that for long-term progress and growth in China, better strategies are required, namely re-phasing product flow, inventory management, innovation, etc.

Final words

NIKE, Inc. (NYSE:NKE) has shown robust performance over the last few quarters, despite the economic slowdown in the U.S. It showed improvement in gross margins for the first time over the last two years. Additionally, it’s marked by improving EPS, increasing future orders (up 6%), strategic share repurchase programs and focused investments in value drivers. Also, to be noted is the death of a strong competitive brand, Reebok. The Chinese turnaround, and future plans for emerging markets, throws light on a bright future for Nike. It seems Nike is on a dream run, and this quarter has fueled it further. In such scenarios, NIKE, Inc. (NYSE:NKE) would be a value bet, and would be a BUY and HOLD.

The article Nike: Just did it! originally appeared on Fool.com and is written by Adarsh Agarwal.

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