Nike: Bad news buy

by Amy Calistri, editor Stock of the Month

When I first bought shares of the athletic footwear and clothing company Nike (NKE) last October, I bought only half of my intended position.

Nike recently announced its fiscal 2012 fourth-quarter results and the company missed analysts' expectations by a wide margin. With the stock is trading down, I am going to buy additional shares.

Although revenues grew 12% in the quarter ended March 31, earnings per share dropped 6% compared with the same quarter a year ago.

But the drop in earnings shouldn't be taken at face value. Nike took a $24 million restructuring charge to streamline its operations in Western Europe.

It also accelerated its research and development spending on its new digital product line. Nike even settled a customs fee from an emerging markets territory related to imports that occurred during the past four fiscal years.

Nike grew revenues in every geography and product line. North American revenues grew 13%. Revenues from Central and Eastern Europe were up 20%.

Even Western Europe, where debt and austerity are weighing on economies, Nike's revenues were up 7%. And China may be slowing down, but Nike was still able to grow revenues by 14% in that competitive market.

Still, Nike is facing some macroeconomic headwinds. The weaker euro will continue to be a drag on Nike's results for at least the next quarter. And slower economic growth in Western Europe and China will also be a challenge for Nike to overcome in the next three to six months.

This was clearly not the quarter I was hoping for from Nike. But I truly believe Nike will navigate the macroeconomic headwinds better than its competitors.

It will continue to invest in innovation during slower quarters -- precisely when its competitors have to cut back -- and gain market share.

The 2012 Olympics are less than a month away. Just a few months after that, NFL players -- clad in Nike uniforms -- will take to the field for another season. I can't believe that Nike isn't a company I want to still own a year from now.

Action to Take --> Nike's recent announcement shook up a lot of investors and analysts. Its share price may not find a lot of love in the next few months.

But I want to be in Nike for the long haul. In addition to adding to my position now, I will look for another opportunity to buy even more shares in the next few months.

Learn more about this financial newsletter at Amy Calistri's Stock of the Month.

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