September 25, 2015 / 4:43 AM / in 2 years

Nike sprints ahead as China sales defy economic slowdown

BENGALURU/SHANGHAI (Reuters) - Nike Inc’s (NKE.N) first-quarter profits outpaced expectations as surprisingly steep China growth boosted the world’s largest sportswear maker, despite fears of a slowdown in the world’s second-biggest economy.

A customer exits the Niketown store in midtown Manhattan in New York, in this June 25, 2015 file photo. REUTERS/Brendan McDermid/Files

The U.S. firm’s global profit rose 23 percent in the three months to Aug. 31 as sales in Greater China jumped by nearly a third and earnings before interest and taxes (EBIT) soared 51 percent. Nike described the China results as “amazing”.

Nike’s strong China showing bucks a wider trend of slowing consumer sales that has raised a red flag to global firms and markets. While consumption is making up a larger chunk of Chinese growth, confidence indexes are at record lows.

“While we are very mindful of the macroeconomic volatility in China, our brand has never been stronger and our marketplace has never been more healthy,” Andy Campion, Nike’s chief financial officer, said on an earnings call after the results.

China’s economy is heading for its slowest growth in 25 years, causing a headache for firms from luxury carmaker BMW (BMWG.DE) to Dutch electronics group Philips NV (PHG.AS) and French fashion house LVMH (LVMH.PA).

Nike added sales in the market had been helped by overhauling its stores, faster online sales and a busy quarter for sporting events in the country.

An increased focus on health and the advent of sports-focused apps and wearable tech is likely to boost China’s sportswear market further, HSBC said in a September report.

“More participation in sports and increased spending per person should amount to promising growth prospects,” it said.

SHARE BOOST

The company said net income surged 23 percent to $1.18 billion, or $1.34 per share, in the quarter, higher than the $1.19 a share analysts on average had expected.

Revenue climbed 5.4 percent to $8.41 billion, also beating the average analyst estimate of $8.22 billion, according to Thomson Reuters I/B/E/S.

Nike’s shares, already up 19 percent this year, rose 7.5 percent in extended trading after the results, which marked Nike’s ninth straight quarter of better-than-expected profit.

New footwear launches in the basketball, running and sports categories are helping Nike draw customers toward higher-priced products and its direct-to-consumer channel, while the “athleisure” trend is driving sales of athletic apparel.

The push drove a 90 basis-point increase in gross margins to 47.5 percent in the first quarter ended Aug. 31.

The company has also managed to gain traction among younger customers by leveraging social media and its mobile apps.

Investments in product innovation and gathering feedback and data on customers’ fitness activities are also helping Nike get ahead of its rivals, Edward Jones analyst Brian Yarbrough said, calling the first-quarter results “extremely impressive”.

The company’s orders scheduled for delivery from September through January, a gauge of demand it calls “worldwide futures orders”, rose 17 percent, excluding currency changes, at the end of the first quarter.

Analysts on average had expected futures orders growth to slow to 10.3 percent from 13 percent at the end of the fourth quarter, according to Consensus Metrix.

Futures orders also grew 27 percent in China versus analysts’ estimates of a 15.8 percent rise.

Revenue from North America, Nike’s largest market, jumped 8 percent. Footwear sales, the largest source of revenue, increased 9 percent.

Reporting by Ramkumar Iyer in BENGALURU and Adam Jourdan in SHANGHAI; Editing by Sriraj Kalluvila and Stephen Coates

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