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Nike Falls as Profit Trails Estimates First Time Since 2006

Nike Inc. (NKE), the world’s largest sporting goods company, reported third-quarter profit that missed analysts’ estimates, the first in 19 straight quarters, amid higher costs. The shares fell as much as 6.5 percent.

Net income rose to $523 million, or $1.08 a share, in the third quarter ended Feb. 28, from $497 million, or $1.01, a year earlier, the Beaverton, Oregon-based company said today in a statement. Analysts projected $1.12 a share, the average of 12 estimates compiled by Bloomberg.

Nike, led by Chief Executive Officer Mark Parker, is grappling with higher costs for cotton, labor and transportation, which the company projected may reduce profit margins this year. Gross margin, the difference between sales and cost of goods, narrowed 1.1 percent points in the quarter.

“Margins were softer than expected,” Matt Arnold, an analyst at Edward Jones & Co. in Des Peres, Missouri, said in an interview. “It’s surprising given the streak they had,” said Jones, who has a “buy” rating on the shares.

Nike fell as much as $5.51 to $79.90 in extended trading after gaining 59 cents to $85.41 at 4 p.m. in regular New York Stock Exchange composite trading.

Orders for the Nike brand from March to July increased 9 percent for a total of $7.9 billion, excluding currency fluctuations. That missed the average estimate of four analysts for a gain of 9.8 percent.

Total revenue rose 7.3 percent to $5.08 billion. Analysts projected $5.2 billion, the average of 11 estimates. Sales in North America, Nike’s largest market, advanced 9.3 percent $1.84 billion.

Japan Sales

The damage caused by the earthquake in Japan will affect Nike’s sales in a region that has been underperforming, Chris Svezia, an analyst for Susquehanna Financial Group in New York, said in an interview before the results. Sales from Japan declined 8.5 percent to $195 million in the third quarter.

In Japan “no one is going to be focused at the moment on buying athletic footwear and apparel,” said Svezia, who has a “neutral” rating on Nike shares. “The flipside is there could be a surge six months from now when people need to replenish.”

Nike is assessing the impact to its operations and monitoring the situation closely, Derek Kent, a spokesman, said in an e-mailed statement on March 14. The company doesn’t disclose how many stores it has per country.

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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