Good Luck Chasing Nike

TheStreet.com

NEW YORK (TheStreet) -- We hear stories all the time from investors expressing regret about "missing a run" in a stock. This is often a painful situation where we're reminded how clear the review mirror is.

But I've learned this lesson long ago. I don't expect "what ifs" will cease to be a part of the investment process anytime soon. But this still doesn't make me feel better about my decision last year to wait on Nike .

More than once I've had an opportunity to jump in on this stock at much cheaper levels and I didn't "do it." This was prior to the company enacting a 2-for-1 stock split last December. As with rivals Under Armour and Adidas , I've spent the past year thinking that Nike's struggles in China would set the company back. In my case, I figured it would present an opening to buy lower. I was wrong.

Remarkably, since Nike reached a pre-split low of $89.65 ($44.82 adjusted) per share on Nov. 14, the stock has surged more than 40%, including gains of 25% year-to-date. After the company's strong close to its fiscal year, during which fourth-quarter results beat on both the top and bottom lines, I don't see shares of Nike getting cheap anytime soon.

The company posted 7% growth in revenue, which was roughly 2% higher on a constant currency basis. Growth was led by an 8% year-over-year increase in footwear, while apparel sales surged 20%. I've always believed that Nike was underrated in this category. Despite the strong showing in apparel, I still believe Nike management has room to add some serious pressure on Lululemon if it wanted.

Nike is also doing well with its direct-to-consumer business, which grew 16%, helped by a strong 11% jump in North American same-store-sales for Nike-owned stores. I don't want to understate how impressive of an accomplishment this is, especially given the global economic headwinds that we've seen.

The fact that this company has now posted 14 consecutive quarters of double-digit same-store sales growth in North America is a marvel. Again, I can't say that I'm surprised. But I've also been waiting for Nike to trip. It hasn't. Given the 8% increase in Nike's futures orders, with by 12% growth in North America, there are no meaningful signs of slowing down. This is even with areas such as Western Europe and China posting flat futures.

Futures, (as it sounds) typically represent something like a "backlog" or a relied-upon commitment to buy. It's not an exact science for predicting Nike's sales or that of any other company. But it's nonetheless a worthwhile gauge of product interest. In terms of profitability, Nike's management presented me nothing that I could criticize.

The company earned 76 cents per share, which was 27% higher year over year, helped by a 1% year-over-year increase in gross margin - beating its own guidance. Meanwhile, operating margin advanced 130 basis points, spurring 19% jump in operating income. While I could nitpick about the company's 7% increase in inventory, this is still 1% lower than the futures that we've discussed.

Had inventory been lower, say by 2%, we would then be forced to speculate about fulfillment and question whether Nike will be able to meet demand. In terms of outlook, management expects first-quarter revenue fiscal-year 2014 to grow at a mid-to-high-single digit rate. Management didn't offer a specific number, but I'm modeling 7.5% to 8%, which is the average growth rate of the past four quarters.

Gross margins are expected to come in flat. But management has outlined strategies to improve efficiency and production methods. There are still many unknowns, though, regarding average selling prices per unit. But management did say it will take a "selective price increase" approach as they strengthening the premium segment its footwear and apparel businesses.

As I've said above, I believe Nike has some opportunities to lead in apparel. Given its current dominance in footwear over the likes of Skechers , New Balance and Reebok, Nike management will need new challenges, especially with revenue growth already at impressive levels. I'm not discounting that this is a great problem for any company to have. But failing to maximize the growth potential in apparel where Lululemon is dominating is still a missed opportunity -- at least in my view.

In closing, I should have lived up to the company's slogan to "just do it." Instead, I tried to time the right entry point and I allowed the stock to get away. There haven't been many. I'm not suggesting it's too late for new investors, though. You can still "step in" this company and do well in the long term.

I believe that Nike, as with McDonald's and Coca-Cola is one of those brands that you buy and store away forever. The name alone is worth something. But in my case, after missing such enormous gains chasing this stock, I feel out of breath.

At the time of publication, the author was long AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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