Nike Signals Weaker-Than-Expected Sales GrowthMatt Townsend and Leslie Patton
Nike Inc., after posting third-quarter profit and sales that topped estimates, signaled that momentum may slow as a strong dollar hampers its performance abroad.
Sales this quarter will grow at a high single-digit percentage rate, Chief Financial Officer Donald Blair said yesterday on a conference call with analysts. Analysts had estimated a 12 percent gain on average.
Nike, which got 45 percent of its sales outside of the U.S. last quarter, is contending with a stronger dollar -- a trend that reduces the value of its revenue and profit generated internationally. That phenomenon will hamper results even more in the current period, Blair said.
“It’s foreign currency, as well as they’re going to continue to invest behind the brands,” Brian Yarbrough, an analyst with Edward Jones & Co. in St. Louis, said in an interview.
Federal Reserve policy makers signaled this week they’ll probably raise interest rates by the middle of next year. The move would boost the return on dollar-denominated assets, thereby increasing demand for the currency. The dollar rose to the strongest level in two weeks against the euro yesterday, climbing versus 14 of 16 major peers.
Foreign-exchange “headwinds have been a significant drag on EPS growth so far this year, and we expect to face ongoing pressure” in the fourth quarter and into next year, Nike’s Blair said on the call.
The stock fell 5.1 percent to $75.21 at the close in New York. Nike’s German competitor Adidas AG also is facing headwinds. It said this month that the weakness of currencies such as the Russian ruble will cause 2014 profit to miss estimates. Adidas shares fell 1.8 percent to 76.24 euros today in Frankfurt.
Nike’s forecast came after the Beaverton, Oregon-based company posted earnings of 76 cents a share in the quarter ended Feb. 28. The average of 26 analysts’ estimates compiled by Bloomberg was 72 cents.
Nike, the world’s largest sporting-goods company, had been benefiting from consumers increasingly buying athletic gear to wear every day, not just when working out or playing sports. That’s helped it continue to generate growth in mature markets such as North America, where sales gained 12 percent.
“It’s a great quarter with sales up across the board,” Yarbrough said. “Nike’s product is firing on all cylinders right now,” especially in basketball and running, he said.
Total revenue rose 13 percent to $6.97 billion, the company said in a statement. Analysts projected $6.81 billion, on average. Sales increased in every geographic region, including China, which posted a decline last fiscal year.
Orders for the Nike brand from this month to July rose 14 percent, excluding the effects of foreign-currency exchange-rate fluctuations. Analysts estimated a 12.7 percent gain, on average, according to data collected by Consensus Metrix. The measure, known as futures orders, is closely watched because investors view it as a proxy for future sales.
There were a couple points of concern in the orders, Yarbrough said. North America future orders rose 9 percent, marking the first time they hadn’t recorded a double-digit percentage gain since 2010, he said. Orders in Greater China, which the company has been trying to turn around, declined 3 percent. Analysts expected a gain of 2.7 percent in China and 11.2 percent in North America.
The company’s gross margin, the percentage of sales left after subtracting the cost of goods sold, expanded 0.3 percentage point to 44.5 percent. That trailed analysts’ projections of 44.7 percent. The expansion was the fifth straight after two years of declines.
The North American sports gear market has been booming. Foot Locker Inc., the largest athletic-shoe chain in the U.S., posted a 5.3 percent gain in same-store sales during a fourth quarter in which many retailers struggled. Revenue at Under Armour Inc. surged 35 percent in its most recent quarter. Those gains are enticing companies such as Gap Inc. and Urban Outfitters Inc. to expand into the category.
Nike’s third-quarter net income fell 21 percent to $685 million from $866 million a year earlier, when it booked a gain from the sale of its Cole Haan and Umbro businesses.