Nike Inc (NKE): The Company’s Growth Speeds Up

investBob Ciura:   Athletic apparel company Nike (NYSE:NKE) is the best performing stock in the Dow Jones Industrial Average this year. The stock has returned 38% since the beginning of 2015, not including dividends. That has trounced the S&P 500, which has gained just 2% in the same time.


The stock has performed so well because Nike is enjoying rapid growth across multiple business segments and geographic markets. And just in time for the holidays, the company announced a stock split, a massive new stock buyback, and also raised its dividend. As that trifecta proves, Nike is a stock that keeps on giving.

Sending Investors a Gift

On Nov. 19, Nike announced a 14% dividend increase, a 2-for-1 stock split and a massive $12 billion share repurchase authorization.

Nike’s new dividend represents an annualized yield of just 1%. That’s not much, but that yield will likely grow to become a significant yield with enough time. Nike is a premier dividend growth stock; it has now come through with 14 consecutive years of dividend raises. According to the company, the dividend has increased by a factor of more than 10 in those 14 years.

The share buybacks will take place over an expected time frame of four years upon completion of the current buyback, expected by the end of the current fiscal year. A $12 billion buyback represents approximately 10% of Nike’s current market capitalization, or about 2.5% per year. This will be a positive catalyst for continued earnings growth over the next several years, as fewer shares outstanding means each remaining share captures a greater share of a company’s earnings.

Nike’s Growth Speeds Up

Nike can unleash a wave of cash on its investors because its growth is accelerating.

Nike’s revenue and earnings per share grew 5% and 23%, respectively, last quarter. And keep in mind this growth came at a time when multinational companies are being considerably weighed down byforeign exchange headwinds.

The strengthening U.S. dollar held back Nike from even more impressive growth figures. On a currency-neutral basis, revenue would have increased 14%. Other key metrics were very strong. Worldwide futures orders, a gauge of future demand, rose 17% last year, excluding foreign exchange.

Two key areas that have fueled Nike’s outsized growth are its online and women’s businesses. Nike’s e-commerce business grew constant-currency revenue by 46% last quarter. As an increasing share of consumer shopping is being conducted online for the convenience, Nike is reaping the benefits. Nike saw robust growth in digital channel sales across all of its geographic markets, with strong conversion and increased mobile traffic.

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