Monday, September 22, 2008

Nike Share Repurchase - Where is the Cash

Nike (NKE) announced a $5 billion dollar share repurchase program spread out over the next few years. This highly significant financial news comes out two days before their announced release of quarterly earnings. The Olympics have come and gone so this should be a report card on how well promotional activities have done or not done.

The dividend yield is approximately 1.40%. This number needs to be read in the context that the stock trades at the mid point of its 52 week range. The company clearly feels a need to buy its way out of its stock. They seem to be less impressed with the need to create a value proposition for shareholders.

Too much financial engineering at the moment. Fundamentals on Wednesday will tell the story. Watch for management to oversell the story. When you run your eye over cash flow and cash reserves you have to wonder where the cash is going to come from. A quick look at the numbers shows they are spending twice as much money on share buy backs as opposed to dividends. Last fiscal year’s net profits were approximately $1.8billion. It looks like every dollar earned is returned to shareholders in some fashion. Not a good prospect for the future.