Nike Drops Amid Slowing Demand From China
Nike Inc. (NKE), the world’s largest sporting-goods company, declined after reporting future orders that trailed analysts’ estimates as demand sank in China.
Chief Executive Officer Mark Parker has been discounting merchandise in China to clear inventory that wasn’t selling well, hurting demand for new products. Future orders from China, excluding currency fluctuations, declined 6 percent, trailing analysts’ average estimate for a 1.2 percent gain. Total orders for the Nike brand from September to January advanced 8 percent, trailing the 10 percent average estimate.
“The futures numbers are what’s most important, and when you’ve got a negative China number and deceleration in global future numbers, that’s what’s driving the stock down,” Camilo Lyon, an analyst for Canaccord Genuity Corp. in New York, said in an interview. The China orders “were worse than anyone expected.”
The economy in China “appears to be slowing, creating a short-term impact to any business operating there,” Charles Denson, president of the Nike brand, said yesterday on a conference call with analysts. He declined to say when results in China would improve.
Net income in the quarter ended Aug. 31 declined 12 percent to $567 million, or $1.23 a share, from $645 million, or $1.36, a year earlier, the company said yesterday in a statement. Analysts projected $1.13 a share, the average of estimates compiled by Bloomberg. The profit drop was the second straight decline after nine straight quarterly gains.
Several companies have had to discount this year as demand declines in China. There is a significant glut of inventory in athletic apparel and footwear, said Lyon, who recently spent time in the region. A year ago, Nike’s orders for China rose 22 percent.
While total revenue rose 9.7 percent to $6.67 billion, which also topped analysts’ estimates, Nike’s profitability was hurt by higher costs for labor and materials. Gross margin, or the percentage of sales left after the cost of goods sold, narrowed 0.8 percentage point to 43.5 percent from a year earlier. That marked the seventh straight decline.
“There are some very real pressures in this world, and in this market, that even a company with the size and sophistication of Nike can’t avoid,” Lyon said before the results.
North America continued to be a bright spot for Nike as revenue in the region surged 23 percent to $2.71 billion. Orders rose 13 percent. Analysts projected 14 percent. That strength, especially in the U.S., has masked slowing growth overseas, Lyon said.
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