Nike Cautious Despite Solid Q1

NEW YORK — After World Cup fever helped heat up Nike’s fourth-quarter income, analysts are bullish on the company’s top-line growth prospects for the rest of the year.

Still, market watchers said earnings could be impacted by foreign exchange pressures and higher sourcing costs.

“There’s no question China is becoming more expensive for [Nike] to source product, whether it’s labor, shortage of production lines or material lines,” said Christopher Svezia, analyst at Susquehanna Financial Group.

“[As] we move into the new financial year, nobody’s out of the woods yet,” Mark Parker, president and CEO of Nike, said in a conference call with analysts last Wednesday. “We’re sure to face more challenges as unemployment, input costs, foreign currency and market volatility play themselves out.”

But Michael Binetti, an analyst at UBS Investment Bank, said such headwinds are near-term pressures, and that Nike is well-positioned to “navigate the waters better than many of its competitors.”

Also on the bright side, accelerating futures orders suggest that global demand for Nike’s products remains strong.

“Futures orders are up 10 percent, which is 2 percentage points better than the Street estimates. Plus, the emerging markets and China businesses are very strong,” said Sam Poser, an analyst at Sterne Agee.

Footwear sales in the athletic firm’s emerging markets, which include South Korea, Mexico and Brazil, surged 23 percent for the full year and helped drive the 20 percent overall revenue growth in the region.

Footwear revenue in the North American business, in contrast, was up just 1 percent during the quarter.

“You hear so many positive things about footwear this year, for toning, running and boots. But basketball has been tough this year, and retailers are shifting to other categories. Footwear is not as strong as [Nike’s] futures indicate, but the trend line should improve somewhat, thanks, in part, to women’s training,” said Svezia.

Another space to watch, analysts said, is Nike Free, where the company is expected to launch some toning-based product later this year.

“I get a sense that they’re being pulled into this,” Svezia said. “I don’t know if it’s game-changing, but its something Nike needs to put in the marketplace to compete.”

The Beaverton, Ore.-based company last Wednesday reported net profit of $521.9 million for the three months ended May 31, an increase of 53 percent over the same period a year ago.

Fourth-quarter revenues were up 8 percent to $5.1 billion, buoyed by a 39 percent jump in its soccer business, according to Nike Brand President Charlie Denson.

For the full year, Nike’s revenue fell 1 percent to $19 billion. But net income rose 28 percent to $1.9 billion, or $3.86 a diluted share, as a one-time, after-tax restructuring charge of $195 million dented its bottom line in fiscal 2009.

Looking ahead, analysts expect revenue growth of 5 percent to 8 percent for full-year 2011.

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