This is evidence that rising input costs are hurting Nike's profit, said Giri Cherukuri, a portfolio manager with OakBrook Investments, which owns Nike shares. Nike's margins will be under pressure for the rest of the year.
Nike executives in December had warned investors that rising costs for cotton, labor and transportation would hurt profit margins in the second half of its fiscal year despite rising demand.
Gross margin fell 1.1 percentage points to 45.8 percent in its third fiscal quarter. Revenue in the quarter ended February 28 rose 7.3 percent to $5.08 billion.
Future orders, excluding currency exchange rates -- a key measure of sales growth -- rose 9 percent, in line with the estimates of several Wall Street analysts.
UBS analyst Michael Binetti had expected 10 percent growth and added he believed investors were looking for an increase of 8 to 9 percent. McAdams Wright Ragen forecast growth of 8 to 9 percent, while Barclays Capital was at 7 to 9 percent and Citi at about 8 percent.
Orders for Nike brand shoes and apparel scheduled for delivery from March through July 2011 totaled $7.9 billion.
By region, revenue in Nike's largest market, North America, increased 9 percent to $1.84 billion, while sales in emerging markets and greater China rose 19 percent and 21 percent, respectively. Japan was the only market where sales fell, sliding 8 percent.
Net income in the fiscal third quarter rose 5.2 percent to $523 million, or $1.08 a share, compared with $497 million, or $1.01 cents a share, in the year-earlier quarter.
That was below analysts' average expectation of $1.12 per share, according to Thomson Reuters I/B/E/S.
Shares fell $4.41, or 5.2 percent, to $81 following the earnings report, after closing at $85.41 on the New York Stock Exchange.
(Reporting by Phil Wahba in New York and Ben Klayman in Detroit; Editing by Gary Hill)