Nike’s 22% Q2 Profit Hike Offset by Future Orders

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Beaverton, OR–Strong sales and clean inventories have helped sports brand giant Nike Inc. to a 22% hike in second quarter profit, but shares fell nearly 6% after an 11% rise in future orders came in below analysts’ expectations.

Following the report released Tuesday, Nike’s stock closed regular trading up 2.2% at $92.03 before dropping to $87.47 in the wake of the report. Before the hit, shares had rallied 40% so far this year.

“We had a great second quarter. Almost every brand, category and geography delivered growth,” said Mark Parker, president and ceo. “We continue to outperform the market thanks to our innovative product, compelling brands and strong marketplace management.”

The company said net income in the three months ended November 30 climbed to $457 million or $0.94 per share, up from $375 million or $0.76 per share a year earlier. Sales rose 10% to $4.84 billion, and rose 11% excluding currency fluctuations.

Revenues for the Nike Brand were up 9%, driven by growth in all seven categories except sportswear, which was down slightly compared to the prior year. Growth was also seen in every geography except Japan, the company said. Strong demand for the Cole Haan, Converse, Hurley, Nike Golf and Umbro brands also boosted other business revenues by 13%.

Fewer Orders From China, Emerging Markets

There was also good news on the margin front, after “higher mix of full-price sales,” as well as improved profitability from the company’s direct to consumer operations lifted gross margins by 80 basis points to 45.3%. But the market instead focused on Nike’s warning about the impact of cost pressures on margins, including additional air freight costs incurred to meet strong demand for its products. And an 11% rise in futures orders to $7.7 brand for Nike brand athletic footwear and apparel, scheduled for delivery from December through April 2011, was lower than analysts’ 12% to 13% expected increases.

“They didn’t beat rising expectations for future orders and that’s why the stock’s down,” said Jon Fisher, portfolio manager with Fifth Third Asset Management.

While Nike faced some tough comparisons considering its success during last summer’s World Cup, but apparently analysts said investors were concerned about a deceleration in orders from China and other emerging markets.

Orders for China gained 14% compared to an advance of 23% in the prior period, while emerging markets increased 15%, down from a 24%. Donald Blair, Nike chief financial officer, explained in a conference call with analysts that those regions had an upswing due to the World Cup.

Despite analysts’ concerns, Parker remained buoyant. “Going forward, we’re in the enviable position of having far more opportunities than challenges,” he said. ‘I’m confident our strategies can continue to deliver sustainable, profitable growth.”