Beaverton, 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.