Nike orders disappoint, shares fall
SAN FRANCISCO (Reuters) - Nike Inc (NKE.N) reported a worse-than-expected global decline in forward orders, especially in its European region, sending shares of the world's largest athletic shoe and clothing company down nearly 5 percent in extended trading on Wednesday.
The company, which vies with Adidas ADSG.DE in the global market for high-end athletic gear, warned analysts that 2010 would be challenging, with flat or slightly negative revenues.
But Chief Executive Mark Parker did talk of a "swoosh recovery," equating gradual improvement in the world economy with the upward curve of the company's logo.
"We're certainly on that longer road up to recovery," Parker said on a conference call. "But it will take awhile, let's be real."
The weak outlook overshadowed slightly better-than-expected earnings for its 2009 fiscal fourth quarter that ended May 31. Nike shares fell to $50.50 in extended trading after closing at $53.02 in regular trade on the New York Stock Exchange.
Looking to 2010, Nike sees gross margin headwinds due to currency fluctuations and Chief Financial Officer Don Blair said revenues would be flat to slightly down on a currency-neutral basis, with lower revenues in the first half of the year, particularly in the first quarter.
Nike has responded to the global downturn by slashing expenses, compensating for dwindling sales. It is cutting back on marketing, terminating orders from factories in Asia, and laying off 5 percent of global staff.
Net income in Nike's fiscal fourth quarter fell to $341.4 million, or 70 cents per share, from $490.5 million, or 98 cents per share, a year earlier.
The results included a $144.5 million after-tax charge, or 29 cents per share, related to the job cuts and a company-wide realignment involving factory consolidation.
Excluding charges, it earned 99 cents per share, above the 96 cents expected on average by analysts, according to Reuters Estimates.
Beaverton, Oregon-based Nike -- which counts sports superstars Kobe Bryant and LeBron James among its stable of highly paid endorsers -- has weathered the downturn better than some peers, riding its brand cachet and a diverse portfolio of products sold at various prices and channels.
Still, revenue slid 7 percent in the quarter to $4.7 billion. U.S. revenues slipped 2 percent in the quarter, hurt by a lingering slump in apparel sales.
At Nike's European division, which includes the Middle East and Africa, revenues plummeted 19 percent, though they were down a more moderate 3 percent on a constant currency basis.
Sales in the Asia Pacific region were flat, and rose 3 percent excluding currency fluctuations. In China, Nike's fastest-growing region, sales rose only 6 percent, below the 60 percent growth a year ago in advance of the Beijing Olympics.
In the unit selling non-Nike brands, revenues fell 5 percent. But weakness at Cole Haan and Nike Golf was offset by strength at Converse, which grew sales 26 percent.
Forward orders of Nike goods, delivered through November, fell 12 percent from a year ago, or a 5 percent fall excluding currency changes. Sterne Agee analyst Sam Poser said Wall Street had expected a currency-neutral decline of 2 percent.
Looking at forward orders by region, the Europe, Middle East and Africa unit saw the greatest decline of 24 percent, while U.S. future orders fell 4 percent.
"They chopped a lot of costs in the quarter, but gross margins weren't very good," said analyst Poser. "They appear to be doing a lot of things to keep their (market) share but not helping to (protect the) Nike brand."
He cited Nike product in lower-cost chains as an example.
Gross margins fell to 43.4 percent of sales from 45.8 percent a year ago, due to higher input costs and markdowns.
Nike brand President Charlie Denson said the company had not resorted to heavy discounting. Executives defended its strategy of selling products at various price points and venues, from small boutiques to large lower-cost chains.
"Innovation does not stop at the $100 price point," said Parker, citing new products up and down the price ladder. "That's especially appropriate for the times we're in."