Nike Inc., the world's No. 1 sport shoe and apparel maker, on Thursday posted quarterly earnings above Wall Street targets, boosting its shares nearly 6 percent and easing some fears that pricey styles bearing its signature swoosh were losing their luster.
Although stock-based compensation and marketing spending crimped results, Chief Executive Mark Parker dispelled Wall Street speculation that U.S. consumers were moving away from pricey styles by Nike, which has seen slower sales of such footwear in parts of Europe and Japan.
We're seeing performance and even sport culture product at those higher price points actually selling through quite well, Parker said during a conference call with analysts.
McAdams Wright Ragen analyst Sara Hasan said Parker's statement was a relief to Wall Street.
There was a lot of worry that the marquee product wasn't as popular and trendy. They put aside some of those concerns for investors (by saying) that the Nike brand is still strong at the high end, Hasan said.
Net income for the fiscal 2007 first quarter fell 13 percent to $377.2 million, or $1.47 per share, from $432.3 million, or $1.61 per share, in the year-ago period. This beat the average Wall Street estimate of $1.41 per share, according to Reuters Estimates.
Sales rose 9 percent to $4.2 billion, versus analysts' consensus estimate of $4.17 billion, with growth all around the world, the company said.
Stock-based compensation reduced earnings during the quarter by 16 cents per share, Nike said, while the settlement of an arbitration ruling boosted earnings by 3 cents per share.
Gross profit margins during the quarter shrank, while selling and administrative expenses rose. Marketing spending rose 19 percent, largely due to the World Cup tournament, of which Nike was a major sponsor.
Macroeconomic factors like oil and labor costs, as well as higher air freight costs, crimped gross margins for footwear, Nike Chief Financial Officer Don Blair said. Shifts in the product mix and more promotions, especially greater discounting in the U.K. and Japan, also had an impact, he said.
NOT SO WORRISOME
Analyst Hasan also cited as a positive a 6 percent rise in forward orders for footwear and apparel scheduled for delivery from September through January.
Hasan, who had expected a 3 to 5 percent rise over the previous year, called Nike's figure a very strong sign that things are not so worrisome as people think they are.
Total sales rose 6 percent in the U.S. region, 4 percent in Europe and 13 percent in the Asia-Pacific, the Beaverton, Oregon-based company said.
Worries about the strength of the U.S. athletic shoe market have been fueled recently by weaker-than-expected sales at Foot Locker Inc., Nike's No. 1 customer, and Finish Line Inc.. In Japan and parts of Europe, consumers have turned away from high-priced footwear in favor of less pricey styles.
Parker said that while France showed signs of improvement, the U.K. remained a challenge.
I'm not too optimistic we'll see a whole lot of improvement through this fiscal year, Parker said.
Nike forecast high single-digit sales growth for the rest of fiscal 2007, including the current quarter. Blair said gross margins should improve in the second quarter and end the year flat or slightly below fiscal 2006 levels.
Blair reiterated an earlier forecast that earnings would grow in the second half of the year.
Nike shares trade at 13 times 2008 earnings estimates, higher than the ratio for Germany's Adidas AG at over 11, and slightly above Puma AG's at nearly 13 times forward-looking earnings.
Nike shares rose to $87.00 in extended trade after closing down 14 cents at $82.46 on the New York Stock Exchange.