Nike Scores Big – Without Assist From China

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Nike shares are getting major air off of the terrific earnings numbers the company posted on Thursday night. Thanks to earnings and revenue numbers that beat analyst expectations, shares of the sports equipment giant surged to a new all-time high, and made Nike the S&P 500's best performer.

Now investors often treat Nike as a proxy for China growth. So are these numbers telling us that the China story isn't as bad as everyone seems to think?

Well, maybe not. Total revenue in China dropped 10 percent from the year prior – making it the worst performer out of all of Nike's reported regions. And in even worse news, earnings before interest and taxes dropped 20 percent.

Even the good news out of China was talked down by management. While reported future orders in China grew 4 percent, Nike CFO Don Blair told analysts on the earnings call that "we expect Q4 reported revenues for Greater China to be lower than Futures orders would indicate."

So how did Nike managed to report such tremendous numbers? Well, it was all about North America. Sales in Nike's biggest market surged 18 percent leading to a 24 percent increase in North American earnings compared to the year prior.

The big overhanging question is whether Nike can keep growing on North American strength while China continues to struggle.

"People say, how much bigger can you get in North America –but the thing is, they are," said Paul Swinand, who covers Nike for Morningstar.

But that may not be enough to support the company's price-to-earnings ratio, which now stands at nearly 24.

"What makes people start licking their chops is the one billion in China, and the one billion people in India," Swinand said. "And even though China is finally getting better, the whole hiccup that Nike has suffered, and the fact that it's correlated to other companies hiccuping there, does actually worry me."

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