Has Nike Lost Its Footing?
Nike has lost about 9% of its market cap from Wednesday's close. The loss in market cap is the result of earnings per share falling from $1.23 to a still respectable $1.17. Unfortunately, what truly captures Wall Street's attention is guidance. Nike already was trading below the widely followed 200-day moving average, adding fuel to the liquidation based on chart technicals.
Nike's weekly chart is the one to watch. In it, you can find this week's drop moving through the 60-week moving average and the 90-week MA. Both these levels offer support and resistance. More importantly, both offer a history of reactions with price retracements that suggest Nike will once again trade above $92 soon. The 200-week MA doesn't come into play until $75. Nike is far from testing the key support.
Revenue is a bright spot for Nike. Nike is running at a full sprint, with revenue hurtling over $24 billion annually. That is an extension of 16% over last year. Management inculpated higher unit costs that squeezed margins. Based on sales, it appears reasonable, and likely a short-lived obstacle.
Regarding fiscal-year 2012, Nike's CEO Mark G. Parker states:
"... Our revenues reached $24.1 billion; that's up 16%, our highest growth rate in 15 years. Nike Brand revenues grew 16%, and Converse had another great year, with revenues up 17%. There's no doubt about the power of our brands and the strong consumer demand for our products. That said, we didn't deliver as much of that growth to the bottom line as we would have liked."
Insiders sold an abundance of shares in the previous six months. Insiders were not buying either, and with just over a million shares held by insiders, it's clear management hasn't really put its money into the company. I like to see management and investors interests aligned. With Nike, I can't say that's the case.
RealMoney Pro's Timothy Collins wrote a valuable article about how to use options to play the earnings release: Two Earnings Plays to Watch. (You need a Real Money Pro subscription, but if you don't have one take a look at the free trial offer so you can read it.)