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Nike beats Street, U.S. still "growth engine"
2007-06-26
Nike Inc.'s (NYSE:NKE) fourth-quarter profit rose nearly a third on surprisingly strong U.S. and foreign demand for its shoes and apparel, beating Wall Street estimates and sending its shares up more than 5 percent. The world's top maker of athletic shoes and apparel also said fiscal 2008 revenue would be at the top end of a growth target in the high single digits, with lean inventories helping to provide modest growth in gross profit margins. The results, together with orders for future delivery of footwear and apparel in the United States that were above analysts' estimates, appeared to allay some Wall Street worries that sluggish sales at U.S. mall-based retailers were hurting Nike as well. "We've got a little bit of challenge going on in the mall, but overall, all the channels of distribution are still pretty healthy," said Nike Brand President Charlie Denson, calling the U.S. marketplace a "growth engine" that was "pretty healthy." Quarterly net profit at the Beaverton, Oregon-based company rose 32 percent to $437.9 million, or 86 cents per share, compared with $332.8 million, or 64 cents per share, a year earlier. Excluding items, earnings were 90 cents a share, above analysts' average expectations of earnings of 86 cents, excluding items, according to Reuters Estimates. Revenue rose 9 percent to $4.38 billion, also beating analyst expectations of $4.36 billion. Favorable currency exchange rates boosted revenue growth by 2 percentage points. Global orders for delivery of footwear and apparel from June through November rose 12 percent. "Forward orders were a lot stronger than we or anybody else anticipated," said analyst John Shanley of Susquehanna Financial, citing in particular the 12 percent rise for the European region, where sales have been challenging in the United Kingdom and France. STRONG U.S. ORDERS In the United States, future orders rose 7 percent. That compares to the 5 percent expected by Goldman Sachs and the low- to mid-single digits growth projected by Susquehanna Financial. In the year-ago period, Nike's U.S. forward orders rose 9 percent. Shanley attributed the strong U.S. orders to Nike's expanded presence at family footwear and general merchandise chains like J.C. Penney Co Inc.(NYSE:JCP) and Kohl's Corp (NYSE:KSS). Nike's two largest U.S. customers, Foot Locker Inc. (NYSE:FL) and Finish Line Inc.(Nasdaq:FINL), have experienced weakness in same-store sales since last year. Nike has been working on store initiatives to help its retail partners -- including a co-branded basketball store with Foot Locker called "House of Hoops" -- and has offered shoes at a broader range of price points to appeal to cost-conscious shoppers. "Despite those two customers (Foot Locker and Finish Line) having difficulties, the evidence is there that things are performing well in the U.S.," said McAdams Wright Ragen analyst Sara Hasan. Denson said during a conference call with analysts that Nike's sophisticated management of product flow and inventory was helping the company in this environment. Hasan said she was disappointed, however, in Nike's announcement that spending for selling, general and administrative expenses would grow in line with revenue in fiscal 2008. Previously, Hasan said, Nike executives said revenue growth could outpace that spending. Nike will be spending on marketing and infrastructure for its retail initiatives and analysts expect a major marketing push in advance of the 2008 Olympics in Beijing. Shares of Nike trade at over 16 times expected 2008 earnings, compared to the multiple paid for German rivals Adidas AG (ADSG.DE) and Puma AG (PUMG.DE), at nearly 14 and 16 times forward-looking earnings, respectively. Nike shares are up 10 percent since the beginning of the year. The stock rose more than 5 percent to $56.75 a share in after-hours trade, after closing at $53.82 on the New York Stock Exchange.
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