Nike reported stronger than expected orders and quarterly profit as consumer demand remained resilient in its key markets, suggesting a solid holiday season.
The largest global player in the athletic shoe and clothing market warned yesterday of potential "turbulence" ahead but said demand had held up well, keeping inventories low and allowing it to avoid discounts during the first quarter.
Future orders excluding currency exchange rates - a key measure of sales growth - rose 13 per cent, better than analysts expected and indicating a busy shopping season.
And the company tweaked its 2011 financial outlook, saying it now expects revenue - again excluding the impact of currency exchange - to grow at the high end of its previous forecast for high single-digit percentage growth.
"Even in a global market that still has some potential for turbulence, we're seeing evidence that our growth is accelerating," chief executive Mark Parker said on a conference call with analysts.
While rising raw material, energy, labour and transportation costs and foreign exchange rates could still hurt profit margins in the second half of 2011, Nike executives said they see a slow and steady recovery.
Chief financial officer Don Blair said the company's gross margins were helped by lower-than-expected input costs and strong demand that outweighed foreign exchange headwinds and higher sourcing and air freight costs.
"There's a lot to like about our first-quarter results," he said, adding Nike is working to boost capacity at its factories to meet "surging demand."
Net income in its fiscal first quarter rose 9 per cent to $559 million, or $1.14 a share, compared with $513 million, or $1.04 a share, in the year-earlier period.
Analysts had expected $1.01 a share.
Sales in the quarter ended August 31st rose 8 per cent to $5.18 billion, below the $5.22 billion analysts had expected. But excluding currency fluctuations, revenue rose 10 per cent.
"The top line was a little weaker than expected, but they more than made up for it with some gross margin expansion," McAdams Wright Ragen analyst Sara Hasan said. She has a "hold" rating on the stock.
Gross margins inched higher to 47 per cent from 46.2 per cent, while inventories slid 3 per cent.
Orders for Nike brand shoes and apparel scheduled for delivery from September 2010 through January 2011 totalled $7.1 billion and were up 10 per cent from a year earlier.
Excluding currency changes, those future orders rose 13 per cent. That was the biggest increase in over a decade and better than the 9 per cent to 10 per cent gain forecast by Hasan and Barclays Capital and 8 per cent to 9 per cent gain Goldman Sachs had estimated.
Orders are a key gauge of demand and the company in the fourth quarter saw them rise 7 per cent.
"Looking at the future orders..., people are just expecting a really good holiday season," IBISWorld analyst Nikoleta Panteva said.
By region, revenue in Nike's largest market of North America increased 8 per cent to $1.9 billion, while sales in emerging markets and greater China rose 30 per cent and 11 per cent, respectively.
Revenue in other businesses, including Cole Haan, Converse, Hurley, Nike Golf and Umbro, rose 15 per cent to $693 million.
The company also said during the first quarter it bought back about $517 million worth of shares as part of a $5 billion programme. It still has more than $4 billion available under a four-year program approved in September 2008.
Reuters