Weak forecast hurt
- Last Updated: 2:54 PM, June 30, 2012
- Posted: 11:03 PM, June 29, 2012
The summer Olympics haven’t started yet, but Nike just crashed over a hurdle.
The world’s biggest sporting goods company — whose profits had beaten Wall Street’s forecasts 22 of the last 23 quarters — posted an unexpected earnings drop yesterday as marketing costs grew and sales slowed.
The surprising fiscal flatfootedness sent its stock tumbling.
Shares of the Beaverton, Ore., company fell by as much as 12 percent in regular trading, their worst intraday decline in more than four years.
The stock finished the day at $87.78, down 9.4 percent — putting Nike shares into negative territory for the year.
The shares have lost nearly 24 percent since they closed above $114 on May 3.
Investors got spooked by the sneaker giant’s tepid outlook for the new fiscal year, which called for revenue to grow by a high-single-digit percentage.
Nike, which was co-founded by its chairman, Phil Knight, has set a long-term goal to grow revenue by a high-teens percentage.
“We will see continued uncertainty in the global economy and commodities and labor costs will continue to fluctuate,” CEO Mark Parker told analysts on a conference call late Thursday. “Currency pressures (have) increased, especially in Europe and the emerging markets.”
Even scarier, however, is slackening demand in China, where orders for Nike-branded products rose just 2 percent for the June-to-November period, compared with a 20-percent surge in the previous period.
Indeed, China’s once-red-hot economy “is expected to grow more slowly than we’ve seen over the past five years,” Parker warned.
Analysts were likewise concerned by Nike’s squeezed margins. In January, Parker hiked prices for athletic gear across the board in a bid to offset surging costs for commodities and labor at the Asian factories that crank out its sneakers — but the action ran straight into the teeth of a European recession and Asian slowdown.
Even with the price hike, gross margins shrank for the sixth straight quarter, narrowing 1.5 percentage points to 42.8 percent of sales — a “perplexing” decline, according to ISI Group analyst Omar Saad.
“We are a little concerned that this highly sophisticated, dominant, global consumer company does not have as good a handle on its costs as one would hope,” Saad told clients in a research note.
For the fiscal fourth quarter ended May 31, Nike’s net income fell to $549 million, or $1.17 per share, compared to $594 million, or $1.24, a year earlier. Analysts expected $1.37 per share.
Revenue rose 12 percent to $6.47 billion, while analysts expected $6.51 billion.
Revenue increased in all regions, but growth was weakest in Western Europe, where it rose 2 percent to $1.04 billion. In North America, Nike’s revenue rose 13 percent to $2.42 billion. In China, revenue rose 18 percent to $667 million.