Nike beats on cost cuts, shares jump
SAN FRANCISCO – Nike Inc (NKE.N) beat quarterly profit expectations as deep cost cuts and lower taxes more than offset crumbling revenue in key markets like the United States and China, sending its shares up 4.4 percent.
The world’s top athletic shoe and apparel maker stressed it was gaining market share and stood to benefit when the global economy improved. But executives warned that retailers and consumers remained wary going into the pivotal holiday season, which accounts for the bulk of most retailers’ yearly sales.
“People are still going to be relatively cautious going through that holiday period,” Nike Brand President Charlie Denson told analysts on a conference call, adding that Nike saw “sequential improvement” in retail orders through spring.
Nike’s fiscal first-quarter net profit was $513.0 million, or $1.04 per share, compared with $510.5 million, or $1.03 per share, a year earlier. Analysts, on average, had expected 97 cents per share, according to Reuters Estimates.
Revenue fell 12 percent to $4.8 billion from $5.4 billion a year earlier, when orders in advance of the Beijing Olympics and the European soccer championships boosted sales.
On a constant currency basis, revenues for the full year and second quarter are expected to fall from year-ago levels, Nike said.
But Chris Trompeter, managing director of Tradition Capital Management, said Nike deserved “kudos” for managing costs.
“All in all, given the environment, it was certainly a pleasant surprise — particularly on the bottom line,” he said.
But he added that Nike shares — which are up 56 percent since a year low in March — were trading close to his estimate of fair value.
“We’re not going to be going out and aggressively adding to our position at this price,” Trompeter said.
COST CUTS HELPED
Nike and its rivals, Adidas (ADSG.DE) and Puma (PUMG.DE), have been battling dwindling sales across the world as cash-strapped consumers reduce discretionary spending.
Revenue fell in all Nike’s regions except Japan, which Denson described as a country with “very cautious” consumers. But after accounting for currency fluctuations, sales were flat in Japan and rose in emerging markets, which included Brazil.
In China, a market with double-digit growth last year, sales fell 16 percent. But Nike said the company continued to be the No. 1-selling athletic brand in that country, led by basketball.
Revenues were even down 5 percent in the historically fast-growing unit that sells non-Nike-branded goods. At hot sneaker brand Converse, sales rose 10 percent, the brand’s most profitable quarter ever, but that strength was offset by weakness at Cole Haan and Nike Golf.
Beaverton, Oregon-based Nike has countered declines in consumer spending mainly by cutting costs, streamlining operations and reducing marketing. It has also slashed 5 percent of its global workforce, or some 1,750 jobs.
The company paid a tax rate of 24.7 percent in the quarter, down from 28.5 percent a year earlier, while selling and administrative costs fell 17 percent due to lower marketing and personnel costs. In the first quarter, those costs made up 32.2 percent of revenue from 34.2 percent a year earlier.