Nike profit up but US sales disappoints
Monday, March 26, 2007
NIKE Inc reported an eight per cent rise in net profit, topping analysts' estimates, but soft sales at United States malls and a forecast of lower gross margins this quarter sent its shares down three per cent.
While analysts were cheered by nine per cent growth in global forward orders, they were worried by a mere two per cent sales rise in the US, a decline in sales in Japan, and continued softness in Britain and France.
"The US is a concern," said Sara Hasan, an analyst at McAdams, Wright, Ragen who has a "buy" rating on Nike shares. "That hit people out of left field."
The world's largest maker of athletic shoes and clothing said gross margins, a measure of sales minus costs of goods sold, would be at or slightly below year-ago levels in the fourth quarter and fiscal year.
"It's going to be a very important issue that a lot of investors will focus in tomorrow in terms of their investor decisions on Nike," Susquehanna Financial analyst John Shanley, who has a "neutral" rating on Nike, said of the gross margin.
Nike posted third-quarter net profit of US$350.8 million, or US$1.37 per share, compared with US$325.8 million, or US$1.24 per share, a year earlier and an average analyst estimate of US$1.33, according to Reuters Estimates.
Quarterly sales increased by nine per cent to US$3.93 billion. A favourable currency exchange rate boosted revenue growth by three percentage points and gross margins improved in the period.
The global brand, known for its "swoosh" logo, has seen its two largest US customers, Foot Locker and Finish Line, struggle recently with disappointing sales. Some on Wall Street question whether the popularity of non-athletic footwear has cut into sales of the company's primary products.
"It's no secret that mall-based athletic specialty guys have had a pretty tough year," Nike Brand President Charlie Denson said on a conference call. "We obviously are a big part of this business so I think we've experienced some of that as well."
Nike said it was working to fix the issues it is having at malls but Susquehanna's Shanley said it was unclear whether the company would be able to turn around that business and achieve target sales growth rates in the mid-to-high single digits.
"It's having a major negative effect on Nike's US business," said Shanley, who estimated that Nike derives 21 per cent of its US revenues from the two store chains.
In Europe, Nike sales rose by 15 per cent, though the impact of a weak US dollar alone boosted sales by nine per cent. Sales in Asia Pacific grew 11 per cent, but Japan saw a three per cent drop.
Revenues from Nike's other businesses including hot brands such as Converse and Hurley and its lower-cost Exeter Brands division, where shoes are sold in chains such as Payless ShoeSource rose 15 per cent.
On a positive note, Hasan said a seven per cent rise in inventories was in line with Nike's revenue jump. In recent quarters, analysts have worried over inventory rises that have exceeded revenue growth.
"I think that's a huge strong point," Hasan said of the inventory rise.
Nike shares fell US$2.91 to US$105.69 in after-hours trade after closing at US$108.60 on the New York Stock Exchange. Reuters
While analysts were cheered by nine per cent growth in global forward orders, they were worried by a mere two per cent sales rise in the US, a decline in sales in Japan, and continued softness in Britain and France.
"The US is a concern," said Sara Hasan, an analyst at McAdams, Wright, Ragen who has a "buy" rating on Nike shares. "That hit people out of left field."
The world's largest maker of athletic shoes and clothing said gross margins, a measure of sales minus costs of goods sold, would be at or slightly below year-ago levels in the fourth quarter and fiscal year.
"It's going to be a very important issue that a lot of investors will focus in tomorrow in terms of their investor decisions on Nike," Susquehanna Financial analyst John Shanley, who has a "neutral" rating on Nike, said of the gross margin.
Nike posted third-quarter net profit of US$350.8 million, or US$1.37 per share, compared with US$325.8 million, or US$1.24 per share, a year earlier and an average analyst estimate of US$1.33, according to Reuters Estimates.
Quarterly sales increased by nine per cent to US$3.93 billion. A favourable currency exchange rate boosted revenue growth by three percentage points and gross margins improved in the period.
The global brand, known for its "swoosh" logo, has seen its two largest US customers, Foot Locker and Finish Line, struggle recently with disappointing sales. Some on Wall Street question whether the popularity of non-athletic footwear has cut into sales of the company's primary products.
"It's no secret that mall-based athletic specialty guys have had a pretty tough year," Nike Brand President Charlie Denson said on a conference call. "We obviously are a big part of this business so I think we've experienced some of that as well."
Nike said it was working to fix the issues it is having at malls but Susquehanna's Shanley said it was unclear whether the company would be able to turn around that business and achieve target sales growth rates in the mid-to-high single digits.
"It's having a major negative effect on Nike's US business," said Shanley, who estimated that Nike derives 21 per cent of its US revenues from the two store chains.
In Europe, Nike sales rose by 15 per cent, though the impact of a weak US dollar alone boosted sales by nine per cent. Sales in Asia Pacific grew 11 per cent, but Japan saw a three per cent drop.
Revenues from Nike's other businesses including hot brands such as Converse and Hurley and its lower-cost Exeter Brands division, where shoes are sold in chains such as Payless ShoeSource rose 15 per cent.
On a positive note, Hasan said a seven per cent rise in inventories was in line with Nike's revenue jump. In recent quarters, analysts have worried over inventory rises that have exceeded revenue growth.
"I think that's a huge strong point," Hasan said of the inventory rise.
Nike shares fell US$2.91 to US$105.69 in after-hours trade after closing at US$108.60 on the New York Stock Exchange. Reuters
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