Nike Q1 Profit Stumbles 12%, Pace of Future Orders Slows

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Beaverton, OR—Nike Thursday reported a 12% stumble in its first quarter net income despite accelerating sales, but still managed to exceed analysts’ expectations.

For quarter ended August 31, the athletic apparel and footwear giant posted net income of $567 million, or $1.23 a share, compared to $645 million or $1.36 per share for the year ago quarter. Analysts’ average estimate expected earnings of $1.12 a share.

Excluding business Nike plans to divest, including Cole Haan and Umbro brands, estimated earnings per share would have been $1.27, compared to $1.39 in the prior year quarter.

First quarter revenue rose 10% to $6.67 billion from $6.08 billion last year. Excluding changes in currency exchange rates, first quarter revenues grew 15% from a year earlier, good enough to exceed analysts’ consensus for $6.41 billion in sales.

For the first quarter, footwear sales rose 11% to $3.7 billion, while apparel sales increased 10% to $1.8 billion and equipment sales grew 13% to $386 million.

“We had a strong first quarter and a great start to the fiscal year. Nike, Inc. delivered an amazing array of innovation across some of the biggest moments in sport,” CEO Mark Parker said.

Footwear sales in the first quarter rose 11% to $3.7 billion, while apparel sales increased 10% to $1.8 billion and equipment sales grew 13% to $386 million.

Concerns on Smaller Increase in Future Orders

By region, Nike said that despite the weak economic recovery, North America had a 23% jump in revenue to $2.71 billion, driven by a 44% surge in equipment sales to $179 million.

However, revenue in Western Europe slid 5% to $1.17 billion due to the Euro zone debt crisis. Nike said its Central and Eastern European revenue gained 2% to $342 million.

In Greater China, which now accounts for about 30% of Nike’s sales, revenue rose 8% to $672 million? Emerging market sales also grew 8% to $867 million.

But analysts were disappointed in Nike’s global futures orders for footwear and apparel scheduled for delivery through January, which were up only 6% to $8.9 billion year-over-year. That marks the smallest increase in future orders in almost three years and is well off the year-earlier’s 16% leap, according to Dow Jones Newswires. And while future orders for North America stand at a healthy 13%, they fell 6% in Greater China.

Nike reported its gross margins for the quarter fell to 43.5% from 44.3% a year ago, due mainly to higher input costs, a shift in the company’s mix to lower margin businesses within the Nike brand and the conversion to direct distribution of Converse in China.

First quarter selling and administrative expenses rose 16% to $2.2 billion, which included demand creation expenses up 29% due to key marketing initiatives around the European Football Championships and the Summer Olympics.


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