It’s a mixed bag for Nike Inc. and The Finish Line Inc. heading into 2012.
Both companies, which reported their quarterly results last week, will maintain their top line momentum but face greater margin pressure, said analysts.
Nike, which beat The Street in its second quarter, encouraged analysts with its futures orders increase of 13 percent.
“Futures… could beat expectations again in the third quarter,” said Michael Binetti, analyst at UBS Investment Research.
Kate McShane, analyst at Citi Investment Research, agreed futures will remain strong for the next several quarters, due to “a combination of Nike’s price increases of about 6 percent being readily accepted by retailers; new innovation coming down the pike; continued momentum in North America and China.”
Meanwhile, Mitch Kummetz, analyst at R.W. Baird. Noted, “The company’s revenue momentum should continue into the back half of the year, [but] gross margin results and outlook remain a source of frustration for investors.”
In the second quarter, Nike’s gross margin declined 260 basis points to 42.7 percent due to higher product costs. Net income advanced 2.6 percent to $469 million, or $1 a share, while revenues increased 18.4 percent to $5.73 billion.
Don Blair, VP and CFO of Nike, said in a call with analysts that while planned price increases for the spring and summer 2012 seasons will provide greater benefit to gross margin in the second half, the firm expects full-year gross margin to be down at least 160 basis points.
“Over time, we believe the combination of higher prices and easing materials costs will bring our gross margins back to year-over-year growth,” he added.
At Finish Line, top line momentum also continues to be driven by strong athletic footwear and apparel product trends, while peak margins are expected moderate going forward.
“We have to wonder if this is as good as it is going to get,” said Robert Samuels, analyst at WJB Capital.
Meanwhile, Susquehanna Financial analyst Christopher Svezia, noted that “higher than expected comps failed to flow through to the bottom line in the third quarter.”
Speaking to analysts on a call, Sam Sato, Finish Line President and CMO, said, “Obviously the input costs are higher than a year ago, so our margin is under pressure there. But [this is countered by] price increases… certainly in the footwear category, we haven’t seen any margin erosion or price resistance. [Price increases] can actually be a benefit as long as the innovation engine continues.”
Finish Line’s third quarter net income rose to $5.5 million, or 11 cents a share, from $4.1 million, or 8 cents, a year earlier. Revenues gained 8.1 percent to reach $282 million.