Nike Just Did It (Again)

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What's going on?

Nike stock jumped more than 5% on Friday. Why? Because it said it was making more money than analysts expected and that it would buy back a ton of its own stock ($12 billion worth).

What does this mean?

Lots of people (especially in the US) now wear gym gear for lots of non-gym activities (a trend, arguably, popularized by Lululemon yoga pants). The new fashion trend has helped sales at Nike boom.

Companies generally have two ways to send profits back to their shareholders (and, often, both are utilized). One is to pay a dividend, which is a straight cash payment to its shareholders (Nike increased its dividend which also helped the stock). Another is to buyback its own stock. By buying back its own stock the company is reducing the total amount of stock available to the public. In turn, this increases the value of the remaining stock for its existing owners.

Why should I care?

  1. The bigger picture: People are spending money! The tone has become markedly better for retail stocks after those bad reports from Macys and Nordstrom a few weeks ago. Since then, companies like Wal-Mart, Home Depot, Foot Locker and even seemingly forgotten brand Abercrombie & Fitch (stock +25% on Friday) have reported better-than-expected results. The fact that it’s been a good reporting season for retailers is leading analysts to believe that Americans are spending a fair amount of money – which suggests that the economy is doing relatively well.

  2. For stocks: Athletic clothing companies have had a great year. Nike’s stock is up almost 40% this year while Under Armours is +34%. Its difficult to say how much moreshort-term stock price appreciation is left but if you wore athletic clothing when you met your friend for a coffee this weekend, it might be a sign that the strength will continue.
Originally posted as part of the Finimize daily email.

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