Bloomberg News

Nike Profit Tops Estimates as North American Sales Gain

December 21, 2012

Nike Inc. (NKE:US), the world’s largest sporting-goods company, reported second-quarter profit that topped analysts’ estimates as sales gained in North America and the company controlled its marketing costs.

Excluding $137 million in losses associated with the Umbro and Cole Haan businesses Nike is selling or has sold, profit was $1.14 a share, the Beaverton, Oregon-based company said in a statement yesterday. Analysts projected $1 a share, the average of 18 estimates compiled by Bloomberg.

While sales have dropped in some regions abroad, Nike’s largest market of North America remains a strength, with revenue in the region gaining 17 percent amid demand for running shoes. Those gains should continue with orders for the Nike brand from December to April gaining 14 percent in North America.

“North America looks strong,” Chris Svezia, an analyst for Susquehanna Financial Group in New York, said in a telephone interview.

Nike also spent about the same on marketing as a year earlier, which helped profit surpass estimates, he said.

The shares rose (NKE:US) 6.2 percent to $105.10 at the close in New York for the largest gain since June 28, 2011. Nike has gained 9.1 percent this year.

Total orders for the Nike brand, excluding currency exchange-rate changes, advanced 7 percent. Analysts projected a gain of 7.1 percent, the average of four estimates.

Sales Forecast

Sales for this quarter, which runs through February, will increase by a low double-digit percentage, Chief Financial Officer Don Blair said on a conference call with analysts yesterday. The effects of changes in the value of currency would reduce that by one percentage point. Analysts projected a gain of 4.7 percent to $6.12 billion, according to 16 estimates compiled by Bloomberg.

The company continued to see its business in China deteriorate as orders decreased 7 percent. Sales last quarter sank 11 percent to $577 million. To improve the operations, the company is revamping its apparel offerings, Charles Denson, president of the Nike brand, said on the call.

Nike has used discounts to clear inventory that wasn’t selling and is introducing a new line of tighter-fitting apparel that will appeal more to Chinese consumers, Denson said.

Needs Work

“They still have a tale of two companies there,” Sam Poser, a New York-based analyst at Sterne Agee & Leach Inc., said in an interview. “Footwear is extremely strong, and apparel needs a lot of work.”

Net income in the quarter ended Nov. 30 declined 18 percent to $384 million from a year earlier, Nike said in the statement. Total revenue rose 7.4 percent to $5.96 billion.

Nike has been on a mission to improve its profitability. Part of that plan came with the decision to sell money-losing Cole Haan, a fashion brand with its own chain of stores, and the soccer unit Umbro. Cole Haan is in the process of being sold to Apax Partners for $570 million and Iconix Brand Group Inc. (ICON:US) has bought Umbro for $225 million.

The other leg of that effort has been to raise prices and cut production costs to counter rising prices for labor in Asia. While gross margin, or the percentage of sales left after the cost of goods sold, narrowed for the eighth straight quarter, Nike said it would improve by the end of the fiscal year.

“They did a very good job of cost containment,” Poser said.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • NKE
    (NIKE Inc)
    • $79.72 USD
    • 0.24
    • 0.3%
  • ICON
    (Iconix Brand Group Inc)
    • $41.62 USD
    • -0.12
    • -0.29%
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