Tags: Nike | Results | Sales | Growth

Nike Reports Solid Results but Signals Weaker Sales Growth

Thursday, 20 March 2014 07:20 PM

Nike Inc., after posting third-quarter profit and sales that topped analysts’ estimates, signaled that momentum may slow as the strong dollar hampers its performance abroad.

Sales in the quarter through May will gain at a high single-digit percentage rate, Chief Financial Officer Donald Blair said Thursday on a conference call with analysts. Analysts estimated a 12 percent gain, on average.

Nike, which got 45 percent of its sales outside of the U.S. last quarter, is contending with a stronger dollar that reduces the value of its revenue and profit generated internationally. That phenomenon will drag on results even more in the current period, Blair said.

“It’s foreign currency, as well as they’re going to continue to invest behind the brands,” Brian Yarbrough, an analyst with Edward Jones & Co. in St. Louis, said in an interview.

The dollar rose to the strongest level in two weeks against the euro Thursday, and climbed versus 14 of 16 major peers, after Federal Reserve policy makers signaled they’ll probably raise interest rates by the middle of next year. The U.S. dollar has gained 0.8 percent in the past six months among the 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes.

Foreign-exchange “headwinds have been a significant drag on EPS growth so far this year, and we expect to face ongoing pressure” in the fourth quarter and into next year, Nike’s Blair said on the call.

Shares Fall

Nike shares fell 3.7 percent to $76.35 at 6:26 p.m. in New York after the close of regular trading. The stock had climbed as much as 4.7 percent earlier in post-market trading. Beaverton, Oregon-based Nike gained 45 percent in the 12 months through the close Thursday, compared with a 20 percent increase for the Standard & Poor’s 500 Index.

The forecast came after Nike posted earnings of 76 cents a share in the three months through Feb. 28. The average of 26 analysts’ estimates compiled by Bloomberg was 72 cents.

The world’s largest sporting-goods company had been benefiting from consumers increasingly buying athletic gear to wear every day, not just when working out or playing sports. For example, many of Nike’s shoe lines have become fashion accessories. That’s helped it continue to generate growth in mature markets such as North America, where sales gained 12 percent.

“It’s a great quarter with sales up across the board,” Yarbrough said. “Nike’s product is firing on all cylinders right now,” especially in basketball and running, he said.

Sales Rise

Total revenue rose 13 percent to $6.97 billion, the company said in a statement. Analysts projected $6.81 billion, on average. Sales increased in every geographic region, including China, which posted a decline last fiscal year.

Orders for the Nike brand from this month to July rose 14 percent, excluding the effects of foreign-currency exchange-rate fluctuations. Analysts estimated a 12.7 percent gain, on average, according to data collected by Consensus Metrix. The measure, known as futures orders, is closely watched because investors view it as a proxy for future sales.

There were a couple points of concern in the orders, Yarbrough said. North America future orders rose 9 percent, marking the first time they hadn’t recorded a double-digit percentage gain since 2010, he said. Orders in Greater China, which the company has been trying to turn around, declined 3 percent. Analysts expected a gain of 2.7 percent in China and 11.2 percent in North America.

Margin Expands

The company’s gross margin, the percentage of sales left after subtracting the cost of goods sold, expanded 0.3 percentage point to 44.5 percent. That trailed analysts’ projections of 44.7 percent. The expansion was the fifth straight after two years of declines.

The North American sports gear market has been booming. Foot Locker Inc., the largest athletic-shoe chain in the U.S., posted a 5.3 percent gain in same-store sales during a fourth quarter in which many retailers struggled. Revenue at Under Armour Inc. surged 35 percent in its most recent quarter. Those gains are enticing companies from Gap Inc. to Urban Outfitters Inc. to expand into the category.

Nike’s third-quarter net income fell 21 percent to $685 million from $866 million a year earlier, when it booked a gain from the sale of its Cole Haan and Umbro businesses.

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Nike Inc., after posting third-quarter profit and sales that topped analysts' estimates, signaled that momentum may slow as the strong dollar hampers its performance abroad.
Thursday, 20 March 2014 07:20 PM
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