Nike’s Futures Impress

Nike's Futures Impress
Mark Parker

Analysts are cheering Nike Inc.’s futures orders numbers — the strongest in years — but are cautious on the firm’s gross margin issues.

“Futures could be the strongest medium-term performance,” said Kate McShane, analyst at Citi Investment Research. “We believe price increases are being readily accepted by retailers and [growth areas include] new innovation, continued North America momentum and China.”

Camilo Lyon, analyst at Canaccord Genuity, agreed: “In-line revenue growth of 15 percent and futures orders of 18 percent [currency neutral] are impressive.”

But management admitted gross margins pressures continue. Speaking to analysts on a call Thursday, Nike brand president Charles Denson said, “We’re seeing improvement, although not quite at the pace we expected. Gross margins were impacted by our efforts to manage down our inventories in select markets and keep the marketplace clean. On the plus side, we’re beginning to see the benefit of higher prices flow through.”

For the year, Nike is bullish on the running and soccer categories, as well as North America, Europe and China.

“If I hadn’t been working here for the last 33 years, I’d swear North America might even be considered an emerging market,” said Denson, adding that growth drivers stem from having the deepest retail partnerships and the most advanced direct-to-consumer business.

“We are nowhere near our full potential in Europe. Yes, the economic challenges are significant, but … we will use our strong performance positioning in running and football to drive our sportswear business. We believe Western Europe is still a growth market.”

Nike brand revenues in greater China showed the most growth in the third quarter, at 25 percent. Emerging markets was a close second at 23 percent, while North America was third, improving 17 percent.

President and CEO Mark Parker said the fourth quarter would bring “continued challenges from the global economy, mostly around unemployment, debt and currency issues brought on by political uncertainty.”

He’s also concerned that raw material costs, while starting to ease, have not retreated to their previous levels. “For other input costs such as labor, upward pressure continues. That said, I believe there is some stability easing back into the broader marketplace as consumer confidence moves higher in most parts of the world,” Parker added.

In the third quarter, the Beaverton, Ore.-based athletic giant’s net income rose 7.1 percent to $560 million, or $1.20 a share, from $523 million, or $1.08, in the same period the previous year. Revenues advanced 15.1 percent to total $5.85 billion.

Nike now holds $2.02 billion in cash and $229 million in debt.

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