Nike Futures a Worry for Analysts

NEW YORK — Last week’s lackluster forecast from Nike Inc. proved that even the industry’s 800-pound gorilla is susceptible to the woes of the economy.

Analysts took less notice of Nike’s 30 percent profit decline in the fourth quarter, which registered mostly in-line with expectations, and instead focused on the Beaverton, Ore.-based company’s future orders for footwear and apparel, down 12 percent on a real dollar basis from June to November 2009, to $7.8 billion. With currency fluctuations taken into account, future orders declined by 5 percent.

“Everybody expected incremental pressures, but those pressures were across the board in the fourth quarter, and they have now been extended further,” said Thomas Shaw, an equity research analyst at Stifel Nicolaus. “Any positives the company has may be masked a little bit in the near term because the futures number is what everybody is paying attention to.”

Mitch Kummetz, an analyst with Robert W. Baird & Co., expressed concern over Nike’s full-year guidance on gross margins, which are expected to come in below 2009 levels, thanks to foreign exchange headwinds. “Currency is having more of an impact than what most are anticipating,” said Kummetz.

Nike President and CEO Mark Parker acknowledged the tough selling atmosphere during a conference call with analysts last week. “We all know that the challenging economic environment has affected consumer confidence and consumption,” he said. “I believe their heightened sense of caution is likely to continue for the foreseeable future.”

Analysts were encouraged by the company’s footwear sales in the fourth quarter, which were up or flat in all regions except Europe, the Middle East and Africa. Total footwear revenues during the period were down 3 percent to $2.58 billion.

In the U.S., footwear grew 2 percent in the fourth quarter, and 5 percent for the full year. Basketball reported double-digit growth for the year, while global running delivered high-single digit growth and women’s training had its “biggest quarter ever” in the fourth quarter, according to the company.

In addition, Nike executives pointed to strength in higher-priced premium product, such as the $160 Air Max Plus running shoe. “We feel bullish about the consumer appetite for the product at the higher end of the spectrum,” said Parker.

He also called out the company’s Converse brand as its strongest performer in Nike’s “other” portfolio, noting that full-year revenues grew 26 percent to $915 million. In addition, Hurley grew its fiscal 2009 revenues by 19 percent, but Nike Golf and Cole Haan both declined, by 5 percent and 11 percent, respectively.

Apparel lagged behind footwear significantly. Worldwide apparel sales were $1.17 billion during the fourth quarter, a 16 percent fall from the same period last year. Apparel sales totaled $380 million in the U.S., down 15 percent.

“While we’re not satisfied with lower apparel revenues, our market share remained essentially flat year-over-year, our inventories are down significantly and we’re building the foundation for a larger, more-profitable business going forward,” said Donald Blair, Nike’s CFO.

Kummetz said he believes moderate growth for the year is realistic. “It’s premature to assume that by the back half they’ll return to double-digit growth, but we’re modeling low- to mid-single-digit growth in the back half of the year.”

In the three months ended May 31, Nike recorded a net income of $341.4 million, or 70 cents a diluted share, from $490.5 million, or 98 cents, a year ago. Excluding costs for restructuring and other charges, earnings per share totaled 99 cents in the quarter, 3 cents above the consensus estimate reported by Yahoo Finance. Sales in the three months fell 7 percent to $4.71 billion, from $5.09 billion in 2008.

In a move to trim costs and streamline operations, Nike cut about 1,750 positions during the quarter, or about 5 percent of its global workforce.

For all of fiscal 2009, Nike’s profits slid 21 percent to $1.49 billion, or $3.03 a share, from $1.88 billion, or $3.74, in the previous year. Sales grew 2.9 percent to $19.18 billion from $18.63 billion. Footwear sales increased by 6 percent to $10.31 billion.

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