Nike Inc (NKE.N) reported forecast-topping quarterly profit on Thursday on strong North American demand, and its orders volume indicated steady worldwide demand. Its shares were up 6 percent after the bell.
Orders for Nike-branded shoes and clothing scheduled for delivery from December 2012 through April 2013, known as futures orders, were up 14 percent in North America, Nike's most mature market.
"In North America, we created great momentum. This is somewhat counterintuitive to some, given this market size and assumed maturity. But I see tremendous growth potential in North America," Chief Executive Mark Parker said on a call with analysts.
Worldwide orders for the Beaverton, Oregon-based company were up 6 percent, the same as last quarter.
"The biggest driver of this stock is usually futures orders. Last quarter, futures orders were lower than expected. This quarter they came in line, and North America was stronger than expected," said Brian Yarbrough, consumer discretionary analyst for Edward Jones.
Yarbrough also said the company's gross margins for the quarter, though still down, exceeded expectations.
"If you go back a few quarters, gross margins have been down a lot more. The less of a decline is positive," he said.
Nike's gross margins fell 30 basis points at the end of its fiscal second quarter.
The company said it continues to expect gross margin expansion in the fourth quarter of fiscal '13 with those coming in more or less flat in the full year.
For the second quarter ended November 30, the company earned $384 million, or $1.14 a share, from continuing operations. Analysts, on average, were expecting the company to earn $1 a share, as per Thomson Reuters I/B/E/S.
Revenue rose 7 percent to $6.0 billion.
Nike had been caught with excess inventory in key markets like China and was finding it difficult to tackle intense competition and frequent promotional sales by local brands, while distributors and retailers remain wary in an uncertain economy.
"The China problem won't go away in 12-18 months, but it is no worse than it was expected," said Rahul Sharma, founder and managing director of Neev Capital, a London-based consulting company. "But look at North America, it is on fire. And this is such a big business."
On a call with analysts, finance head Don Blair said the company "proactively canceled orders and reduced futures to tightly manage the amount of new product flowing into the (Chinese) market," so as to be able to handle the extra inventory already present there.
The company taking such a hit to near-term futures orders for a long-term benefit was a sign of strength for Sharma.
On Thursday, Nike said inventories for the second quarter rose 9 percent, a much smaller rise than the 35 percent it saw last year.
Nike shares were trading up at $104.75 after the bell. They closed at $99 on the New York Stock Exchange.
(Reporting by Nivedita Bhattacharjee in Chicago; Editing by Gary Hill, Gunna Dickson, Leslie Adler and Leslie Adler)