Most important stock today is Nike, which reports Q4 earnings after the bell.
How's business? Analysts are full of commentary about how the footwear cycle remains strong.
Nike is growing fast, where it counts: emerging markets. While 58 percent of total revenues are outside the United States, half that—27 percent of revenues—now comes from China and other emerging market countries. China and emerging market revenues are growing about about 20 percent a year, nearly twice the growth of North America.
The Achilles heel is costs that are squeezing margins. Remember, Nike got slammed in March when they guided down on gross margins for 2011...the reason: higher input costs and higher air freight costs.
What's higher input costs? Raw materials and wages.
Nike has gone all over the world in search of low-cost—and low-wage—production facilities. Virtually ALL Nike Brand shoes are made outside the U.S.:
Where Nike Manufactures (2010, % of total Nike Brand footwear)
Why manufacture abroad? It's cheaper—a lot cheaper! One analyst I interviewed over a year ago said that the average factory wage in China was about $11 a day, and about $4 a day in Vietnam.
The problem: wage demands are going up in places like China and Vietnam.
Can they offset higher costs with higher prices? They have already announced they would not raise prices until Spring of 2012, but it will be important to see if they have changed that stance.
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