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Nike profit up 51 percent
2007-09-21
Nike Inc (NKE.N) posted on Thursday a 51 percent rise in quarterly net profit, helped by a tax benefit and a weak-dollar boost to revenue, and its shares rose 1.6 percent as the results topped Wall Street targets. The world's largest athletic shoe and clothes maker also raised its fiscal 2008 revenue outlook and said it was exploring a sale of its Nike Bauer Hockey division, which makes hockey equipment and apparel. Net income in the latest quarter rose to $569.7 million, or $1.12 per share, from $377.2 million, or 74 cents per share, a year earlier. Revenue rose 11 percent to $4.7 billion. "The world continues to be a Nike-branded place," said McAdams, Wright Ragan analyst Sara Hasan. She also pointed to improved financial performance as gross profit margins expanded to 44.8 percent from 44.1 percent a year earlier. "I think overall this is a really good quarter. This allays some of the concerns about gross margins," she said. The earnings for Nike's fiscal first quarter ended August 31 include a one-time tax benefit that added 20 cents per share. Excluding that, its profit was 92 cents a share, topping a Wall Street average of 87 cents, according to Reuters Estimates. Revenue also topped analysts' target of $4.6 billion and rose around the world, with growth of 2 percent in the United States, 16 percent in Europe -- where a weak dollar helped boost growth by 7 percentage points -- 22 percent in the Asia Pacific region and 15 percent in the non-U.S. Americas. Over the past year, Nike has remained largely resilient to sluggishness in the U.S. footwear market, as seen at Nike's two largest customers, Foot Locker Inc (FL.N) and Finish Line Inc (FINL.O), but Wall Street has wondered if that would last. Analysts say diversification helps the Beaverton, Oregon-based company weather periods of weak consumer spending because, in addition to pricier, athlete-endorsed shoes, it also sells lower-priced shoes at family-owned chains. During a conference call with analysts, Nike Brand President Charlie Denson addressed analysts' concerns over the 2 percent U.S. growth rate, saying that footwear sales "were up in every major account across all channels with the exception of the mall guys." "We still see a pretty strong marketplace out there," Denson said. "I'm still pretty optimistic here. I think that the U.S. marketplace can continue to perform and across the board we're still having pretty good success." Susquehanna Financial analyst John Shanley said Nike likely believes it can penetrate further into the large sporting goods, family footwear and general merchandise channels. "They're holding their own, but the overall market is shrinking," Shanley said. "They're getting a smaller piece of a smaller pie." Positives included inventory that did not build in the quarter, and "surprising" growth in Europe, particularly the United Kingdom, Shanley said. RAISING REVENUE FORECAST Global orders for delivery of footwear and apparel for September to January rose 11.5 percent, above the expectations of three analysts for a rise of 8.5 percent to 11 percent. Strong revenue growth and more favorable currency exchange rates spurred Nike to bump up its fiscal 2008 revenue outlook to high-single- to low-double-digit percent growth from an earlier prediction of high-single-digit growth. Nike also expects moderate growth in 2008 gross profit margins. Chief Executive Mark Parker said a potential sale of its hockey unit was a "tough decision" but the right one for the company. The sale is due to be completed this fiscal year. Analyst Shanley, who estimates the division makes about $6 million in operating profits, said Germany's Adidas (ADSG.DE) is the only obvious potential buyer for the line. "Do you sell Nike Bauer to your biggest competitor?" he asked. "I don't know what they're going to do with that." Nike shares closed at $58.32, down 24 cents, on the New York Stock Exchange, but rose 1.5 percent in after-hours trade. They are valued at 15.6 times estimated 2009 earnings, above the 13.7 ratio for Adidas and 15.1 for Puma AG (PUMG.DE).
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