NIKE CAN STILL RUN FASTER, JUMP HIGHER

IT CAN NOW be confirmed: Nike Inc. (NKE) has hit a
rough spot. But we already knew that, didn't we?

Given the hubbub surrounding Nike earnings over the past
few days, you'd think there was something new -- and newly
bad -- to report about the world's largest shoe company. In
fact, the first-quarter results announced after the close on
Thursday were probably a little better than might have been
expected, given Wall Street's gloomy predictions following
the May quarter.

It is true that Nike's colorful chairman, Phil Knight, warned
analysts that earnings for the year ending next May will
probably be only slightly ahead of last year's. And the
company predicted that a slowdown in U.S. sales this fall
will dampen overall revenue growth as well. But this much
had been predicted ever since Smith Barney analyst Faye
Landes noted this spring that Nike would slow production
because of growing inventories. Nike overpriced its shoes
and is now suffering the consequences. That's why the stock
has fallen to 54 from its February peak of around 75.

We recommended Nike stock in September of last year at
48 3/4 as part of our "After the Fall: Bargain Stocks to Buy
Now." And after watching its stunning rise to 75, we are
now only 12% ahead with the stock.

Our view, however, is that Nike remains a solid long-term
holding with strong growth prospects internationally. It will
likely remain weak through the next couple of quarters as it
works through its problems. But the company already is
showing signs of improvement that have been widely ignored
over the past few days. Earnings were, in fact, up 12% in the
first quarter, despite the weak U.S. sales. Future orders
were 10% higher overall, a number that masked 33%
growth in Asia and a 38% increase in Latin America.
Inventories, though still too high by historical standards, fell
3% overall from the May quarter and 17% in the U.S.

Bob McGee of Sporting Goods Intelligence notes that the
magazine's regular retailer survey found that Nike orders
were picking up slightly in August and should accelerate
again next March. "It will be difficult until spring," says
Mcgee. "But all along the company has been saying the U.S.
market is mature and future growth will come from
overseas."

Nike is still trading around its five-year average P/E of near
18. But if Wall Street stays dubious about its prospects, the
stock will likely bounce around providing plenty of
opportunities to buy in even cheaper over the next few
months. Nike remains the world's largest shoe company with
unsurpassed marketing, distribution and R&D clout. There's
nothing easy about becoming a true multinational. But our
view is that Nike is worth the bet.

-- By Stacey L. Bradford

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