March 19, 2008 / 9:45 PM / 10 years ago

UPDATE 3-Nike 3rd-quarter net up 32 pct; China sales strong

(Recasts, adds comments from executives during conference call, detail)

By Alexandria Sage

LOS ANGELES, March 19 (Reuters) - Nike Inc (NKE.N) posted a 32 percent rise in quarterly net profit on Wednesday, well above expectations, boosted by a weak dollar and strong international demand, especially in China, sending shares up 5 percent.

Fatter margins and lower costs, along with a slightly lower tax rate, also boosted profit and the world’s largest maker of athletic footwear and apparel said it was continuing to take market share from rivals in the United States, where sales rose 5 percent.

Susquehanna Financial analyst John Shanley applauded Nike’s 27 percent sales gain in the Asia Pacific, along with a 23 percent jump in Europe and a 20 percent gain in the Americas.

“The real telling factor was the strong gain in Asia. That really knocks the cover off the ball,” said Shanley.

Sales in China rose 50 percent in the quarter on a currency-neutral basis. Nike has already reached $1 billion in sales in China, a year ahead of its original target, Chief Executive Mark Parker said on a conference call.

Third-quarter net profit rose to $463.8 million, or 92 cents per share, from $350.8 million, or 68 cents per share, a year earlier. Total sales jumped 16 percent to $4.54 billion.

Wall Street, on average, had been expecting earnings of 80 cents per share on revenue of $4.36 billion, according to Reuters Estimates.

Gross margins rose to 45.1 percent of sales from 44.2 percent, while costs fell to 30.9 percent of sales from 31.7 percent.

Global orders for delivery of shoes and apparel from now until July rose 11 percent, Nike said. While futures orders abroad saw the healthiest growth, they rose a mere 1 percent rise in the United States.

Shanley expected U.S. orders to be flat or be slightly down.

“It’s not a huge positive, but at least they didn’t report a negative,” he added.


Nike has seen rapid growth in emerging markets for its footwear as it gets ready for the Beijing Olympics this summer. The company said it could spend a third more than the previous year on marketing in the fourth quarter in advance of those games.

In addition, the company sees robust demand for its smaller, non-Nike brands, whose sales rose 15 percent in the quarter.

In the United States, Nike has been controlling inventory as athletic shoe retailers struggle to woo cash-strapped consumers.

Nike Brand President Charlie Denson acknowledged “uncertainty” in the U.S. economy, but said he still felt positive about that business as the company co-brands retail stores with its two largest U.S. customers, Foot Locker Inc (FL.N) and Finish Line Inc FINL.O.

The company also recently launched a new line of cross- trainers to compete against smaller rival Under Armour Inc (UA.N).

“We continue to take share, our sell-throughs are strong, we’re gaining ground on everybody,” Denson said. “We’re going to keep the pressure on.”

The weak dollar boosted revenue growth during the quarter by 13 percentage points in its European region, 7 points in Asia and 10 points in the Americas.

For the fourth quarter, Chief Financial Officer Don Blair expects low double-digit revenue growth amid accelerated gross margins.

For fiscal 2009, Blair expects revenue growth in the high single digits on a percentage basis.

Nike recently completed the acquisition of British soccer brand Umbro, which it hopes will beef up its soccer division. It is also selling its Bauer Hockey division to an investor group and unloaded its Starter apparel brand to apparel company Iconix Brand Group Inc (ICON.O) in December.

Nike shares trade at 15 times fiscal 2009 earnings at a premium to its largest competitor, German brand Adidas AG ADSG.DE, which trades at over 10 times for the same period.

In after-hours action, its shares rose to $65.03 from a close of $61.83 on the New York Stock Exchange. The shares are up 14 percent over a year ago. (Reporting by Alexandria Sage; editing by Jeffrey Benkoe/Andre Grenon)

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