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The balance between earnings, revenue and growth is what major companies experience as well. Nike ($NKE) has finally collaborated with Amazon ($AMZN), and the news of this plus its higher than expected Q4 earnings helped the stock soar on June 30. Nike faced significant pressure from its third-party sellers to partner with Amazon, having held out on the deal for years.

Even though Nike managed to beat revenue and earnings estimates per share, experts feel the results are strong only on paper. Here's why:

  • For the May 30-ending fourth quarter, Nike reported revenue of $8.68 billion, which represented only a 5% revenue growth.
  • Its cost of goods sold rose 9%.
  • Gross margins slipped 44.1%, a decline of close to 200 basis points.
  • Gross profit rose by only 1% in the quarter.

While these figures reveal the deeper picture, the company actually increased net income to $1.01 billion, translating to 60 cents per share, which is a rise of 19%. Nike attained this by reducing administrative and selling expenses by 4% and income tax expense by 30%, restricting the expenses to $160 million. This also brought down the effective tax rate of the company from 21.2% to 13.7%. To increase its EPS even more, Nike reduced its diluted shares outstanding from 1.72 billion to 1.68 billion.

This bottom-line EPS growth was thanks to stock repurchases and savings in cost and tax. With analysts expecting $8.63 billion revenue, the company carried out some clever accounting to make its financial performance appear robust. Nike reported EPS of $0.60, higher than analysts' expectation of $0.50. But it only shows that Wall Street analyst estimates are not always a high standard for a company to achieve.

Nike reported $34.35 billion total revenue for the 2017 fiscal year. Analysts expect Nike's revenue to continue rising in the forthcoming quarters and project annual revenue to rise to $43.11 billion as 2020 comes along. To meet analysts' projections, Nike would need to grow revenue at the 7.87% current annual growth rate in the next three years. But the company has not been able to attain that growth rate consistently when looking back at the past years.

Collaborating with Amazon would be a decision to revive growth so that Nike can keep up its high valuation. There is pressure on the footwear and sports apparel manufacturer to increase revenue, sales, and thereby stock price. Teaming up with a retail giant of the caliber of Amazon could be the way to offset all that pressure.

Stock trading can similarly bring about pressure, and that's why features such as free commission stock trading offered by TradeZero can help. Give us a call at +1 954-944-3885 or email support@tradezero.co.

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