Nike Q4 Surprises with Profit Up 22% on Strong Sales

nikeBeaverton, OR—Nike reported Thursday a better-than-expected fourth quarter earnings thanks to strong sales in North America and improved gross margins. But the athletic footwear, apparel and accessories giant warned that its sales in China could soften in the first half of its next fiscal year.

For the quarter ended May 31, Nike posted a 22% increase in net income to $668 million, or 73 cents a share, compared to a $549 million profit, or 59 cents a share a year ago. Its earnings from continuing operations improved to 76 cents a share from 60 cents. Analysts’ average estimate expected 74 cents a share.

Total net revenue increased 7.4% to $6.7 billion, ahead of analysts’ estimates for $6.64 billion in sales.

The company said sales benefited from increased demand for running and basketball gear in North America, its largest market, where sales surged 12% to $2.71 billion. Operating profit in North America rose 28.6% to $723 million.

For the second consecutive quarter, gross margin widened to 43.9% from 43.8%, with Nike crediting lower material costs and pricing adjustments.

‘Lot of Work to Do’ in China

In other regions, such as emerging markets, Central and Eastern Europe, sales improved, offsetting declines in Japan and Western Europe and flat sales in China.

While Nike forecast growth in its next first quarter and fiscal full year, it warned that sales in China could fall in the next six months.

According to Donald Blair, chief financial officer, comparable store sales in China for Nike’s largest retail partners were rising while inventories were falling.

“We still have a lot of work to do,” Blair said. “Our reported results for China won’t always follow a smooth trajectory and it’s difficult to predict how quickly it will return to sustained growth.”

Nike plans to tweak the fit, color and other characteristics of some of the product it sells in China to better appear to Chinese consumers.

“The most critical step in returning this market to health is creating a more compelling, productive and profitable retail marketplace,” Blair added, noting that in May, Nike replaced its top executive in the country, and the company also is working on improving the presentation of its products at retailers there.

Orders for the Nike brand from June to November, excluding the effects of currency exchange-rate changes, were up 8%. Analysts’ estimate expected a gain of 8.8%. Orders on that basis advanced 12% a year earlier.

For the company’s full year, net income increased 11.8% to $2.49 billion, while revenues rose by 8.5% to $25.31 billion.

 

 

 

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Jeff Prine

Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com