Photographer: Stacy Revere/Getty Images

Nike Defies Stagnation in U.S. Retail, China as Orders Surge

  • Sales in Greater China increase 24 percent to $938 million
  • Shoe giant has target of boosting sales 10 percent a year

Nike Inc. posted second-quarter results that showed the footwear and athletic-apparel giant remains largely immune to the shopper malaise that’s plagued much of retail.

The world’s largest sporting-goods maker posted profit of 90 cents a share, topping analysts’ average estimate of 86 cents, as it continued to reap the rewards of a dominant brand and the ongoing fashion shift toward casual, sporty attire. It also defied concerns about slowing economic growth in China, with revenue there gaining 24 percent to $938 million.

  • Orders for the Nike brand for the next four months rose 20 percent, excluding the effects of currency. Analysts expected a 13.6 percent gain.
  • Net income increased 20 percent to $785 million.
  • Sales rose 4.1 percent to $7.69 billion. Analysts estimated $7.81 billion.
  • Gross margin widened 0.5 percentage point to 45.6 percent. 

“Overseas markets have great potential,” for Nike, said Paul Swinand, an analyst at Morningstar Inc. “Investors should take a read on Chinese consumers from the futures orders: There’s room to purchase new Western goods in people’s budgets. That highlights the potential for the long-term middle-class growth there.”

The shares, which had surged 37 percent this year through Tuesday, slipped 2.4 percent to $128.71 at the close in New York. Nike executives said on a conference call after the earnings release that the company’s gross margin may narrow by 0.5 percentage point in the current quarter as it works to clear out inventory in North America to make way for new products.

$50 Billion

The earnings report is Nike’s first since it announced a goal of increasing annual sales to $50 billion by fiscal 2020, up from $30.6 billion in its most recent fiscal year. The target implies an annual growth rate of 10.3 percent, slightly higher than the past two years. The company expects about a third of those gains to come from its online business. That trend played out last quarter, with sales through its websites surging 49 percent.

In the most recent quarter, Nike’s China unit was the standout. Footwear sales there gained 30 percent to $600 million, while apparel revenue climbed 15 percent to $306 million. The strength looks set to continue, with futures orders for the segment increasing 34 percent, excluding currency effects.

Part of Nike’s success in China has been a plan started two years ago to revamp its distribution and merchandise -- like the fit of its apparel -- after a glut of inventory after the Olympics weighed on results. It also has been selling more products through its own stores and websites, which is part of a companywide strategy. Revenue from those segments in China rose 51 percent last quarter.

North America also turned in a strong performance, with sales increasing 9.4 percent to $3.55 billion. Footwear led the gain, with a 12 percent increase. North American futures orders grew 14 percent.

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